How Does a Month-to-Month Lease Work? What Landlords Need to Know

As a landlord, you have options when it comes to setting lease terms. In some cases, a month-to-month lease might make more sense than a traditional one-year lease. But before you can decide if a short-term lease is a good fit for your situation, you need to understand the details of how month-to-month leases work. 

Let’s take a look at some of your pressing month-to-month lease questions, including:

  • What is a month-to-month lease? 
  • How does a month-to-month lease work?
  • Can landlords raise rent on a month-to-month lease?
  • What are the pros and cons of month-to-month leases?
  • Is a month-to-month lease a good fit for you?

What is a Month-to-Month Rental Agreement? 

As the name implies, a month-to-month rental agreement is a lease that lasts for a single month, with the potential to renew for the following month, one month at a time. 

In many cases, month-to-month leases follow long-term leases. If, for example, you have a resident who completes a one-year lease term, but is unable to commit to another year, you might allow the tenant to stay on a month-to-month basis. 

Looking for a template to write your own rental agreement? View our suggestions here broken out by location of where you are

But it’s also possible to start a tenancy with a month-to-month term. There are situations where a short-term rental agreement is appropriate. Traveling professionals, like auditors, travel nurses, and corporate trainers, for example, may be assigned to an area for an indeterminate time frame; they will need accommodations until the project is completed, but the timeline is uncertain. They cannot commit to a longer-term lease, and they may be willing to pay a higher monthly rate for the flexibility afforded by month-to-month rental agreements.

As a side note, the term “rental agreement” is typically used for tenancies lasting less than a year, while “lease” is more often associated with terms of one year or more. But it’s increasingly common to hear “month-to-month lease” rather than “month-to-month rental agreement” so we’ll be using the terms interchangeably.  

How Does a Month-to-Month Lease Work?

In many ways, a month-to-month lease works exactly the same way as a long-term lease. As the landlord, you will still:

  • Advertise the unit for rent.
  • Screen applicants.
  • Accept a deposit.
  • Set policies (for things like late rent payments, pets, and renter’s insurance).
  • Draft a legal agreement to be signed by your tenants and yourself. [link to rental agreement template blog post when live]

The difference is that tenants and landlords are not locked into the lease for longer than 31 days at a time with a month-to-month lease. Instead, both parties agree to a one-month lease with the understanding that the lease will roll over to the next month on the same terms unless either party provides notices to terminate the lease or change the terms of the lease. 

In most states, landlords and tenants both have the option to terminate tenancy or change the terms of the lease by providing a 30-day notice. But because notice requirements are governed by state law, it’s important to check your state-specific notice requirements

Can Landlords Raise Rent on a Month-to-Month Lease?

Generally speaking, landlords have the right to raise the rent at any point during a month-to-month lease as long as proper notice is given to the tenant. 

But “proper notice” varies by state. In most cases, landlords need to give a full months’ notice before increasing the rent price. But some states, like Connecticut, have no specific requirement, while other states, like California, require at least 60 days if the rent will increase by more than 10 percent. 

Make sure you understand your state’s specific landlord/tenant laws before attempting a rental increase on a current tenant.  

Pros of a Month-to-Month Rental Agreement 

Month-to-month rentals come with several benefits.

Flexibility and Control

With a short-term rental, you have more control over when you want to rent it, to whom, and for how long. You even have the option to use your property as a vacation home! Simply block out the time you plan to use the home yourself, and offer the furnished units as a short-term lease option for the rest of the year.

No Long-Term Commitment With Tenants 

If you end up with a tenant who isn’t the right fit, you won’t need to wait a full year to remove them from your unit. With proper notice, you can terminate the rental relationship at any point.

Higher Rental Rate Potential

Many renters are willing to pay higher rates for month-to-month rentals because they also benefit from the flexibility. And, if you’re offering your rental furnished, you can command an even higher rate!

Cons of a Month-to-Month Rental Agreement  

Month-to-month rentals also come with a few potential downsides.

Possible Quick Tenant Turnover 

With a month-to-month rental agreement, you might have a tenant who only stays for 30 days, which means you’ll need to find new tenants immediately. And, since most states require only a 30-day notice to vacate from short-term renters, you won’t have much time to find a new tenant before the unit is vacant.

Long Vacancies Can Impact Rental Income

If you’re not able to get a new tenant moved in quickly, you’ll be stuck with vacancy costs. And during slow rental periods, it can take some time to find new renters. Pay close attention to your local rental market conditions to understand when demand is higher and when your market may have a temporary slump. 

Is a Month-to-Month Rental Agreement a Good Fit For My Rental?  

If you value flexibility over stability, month-to-month rental agreements might be a good fit for you. Month-to-month agreements can also help you maximize profits, depending on your local demand for short-term apartments. While long-term leases provide reliable income over a longer period, offering short-term rentals, particularly furnished short-term rentals, can differentiate your unit in your market and serve a niche clientele who’s willing to pay more than long-term renters.

Are you unsure if a month-to-month rental agreement is your best option? Contact the market professionals at June Homes for an analysis of your unique rental. At June Homes, we specialize in creating higher returns for property owners, and we’re excited to create a custom plan to maximize the profitability of your income property.

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