A month-to-month lease is a rental agreement between you and your tenant that cycles every month. It establishes a tenancy without a long-term commitment. It automatically renews each month until either party chooses to terminate it by serving the other proper notice.
Before choosing a month-to-month lease over a 12-month lease, it’s important to be well-informed about the details. Which is why we at Cressman Realty and Property Management have put together the following guide:
What is a Month-to-Month Lease?
Just like a 12-month lease, a month-to-month lease is a legally binding agreement. It renews month after month until it’s terminated by either party.
In most cases, landlords use month-to-month leases to extend agreements that are nearing expiry. But it’s also possible that a landlord can use it right from the beginning of a tenancy.
Why Would a Landlord Want a Month-To-Month Lease?
If you’re looking for overall flexibility, a month-to-month lease is ideal. It can help you rent to a tenant without any long-term commitments. It may help you, for instance, test the waters when you’re just starting out as a landlord.
You may also find it ideal when you only want to rent out your property for a short period of time. That said, a month-to-month lease isn’t without its problems. For instance, you may experience high vacancy rates while renting your property on a short-term basis.
What Are the Pros of a Month-To-Month Lease?
It’s Easy to Terminate
A month-to-month lease is easy to terminate, unlike a fixed-term agreement. All you have to do is give the tenant with proper written notice, clearly communicating with them them that you won’t be renewing their lease for the next month. The same cannot be said of a fixed-term lease as you must wait for the lease to expire on its own.
Practicing Your Skills
Are you just starting out as a landlord?
If so, a month-to-month agreement can be ideal to use rather over a fixed-term lease.
Being a landlord comes with a variety of responsibilities. Among other things, you’ll need to know how to market the property, screen prospective tenants, maintain the unit, and collect rent. Meaning it can take you years to perfect these skills.
With a month-to-month lease, you’ll be able, for instance, to judge whether your screening process is working by the quality tenants you rent to.
Simple to Raise the Rent
With a month-to-month lease, you can raise rent as a lease-renewal option without losing tenants.
But the maximum you can raise the rent by in Saskatchewan is 1.2%. Also, you must only increase it once a year. You must also give the tenant notice of at least 3 months prior to executing the increase.
Breaking the Lease Is Free of Penalties
In a fixed-term lease, terminating a lease is a serious breach of the contractual agreement. So, the only way to end it early would either be through mutual agreement or by the tenant having a legally justified reason. Other than that, the tenant would be potentially liable for any financial repercussions.
This is not the case with a month-to-month lease. To end it, all you have to do is serve the tenant with notice of at least one month before the day on which the rent is due.
Keeping Quality Tenants
A month-to-month lease gives you the flexibility to only keep the tenants you want. Of course, you’ll want to keep a tenant that pays rent on time, cares for and cleans your rental property, and abides by the terms of the lease.
What Are the Cons of a Month-To-Month Lease?
Renting your property on a month-to-month lease isn’t without its shortcomings:
Uncertain End Date
A month-to-month lease may offer flexibility. But it also brings uncertainty and short-term tenancies.
While you may be able to land a dream tenant, there is no assurance that you’ll be able to keep them for the long term. The tenant may end up only renting for a few months and then you will need to start your marketing process all over again.
Vacancies can kill your ROI. So, you’ll want to re-lease your property as soon as a tenant notifies you that they are leaving. The problem is, only have a short time to work with.
The marketing process is challenge. You have to make the property rent-ready. Draft a proper lease agreement and check it thoroughly. Conduct a property showing and screen prospective tenants. But doing all this can go beyond a month.
This means that you may find yourself grappling with a relatively high vacancy rate.
Renting to a dream tenant is always a win, but only having them on a short-term basis isn’t ideal. The instability this brings may mean not being able to optimize your rental income.
How Are Periodic Leases Different From Fixed-Term Leases?
For one, a month-to-month lease runs month to month until either party terminates it. A fixed-term lease, on the other hand, runs for a fixed time – usually between 6 months and a year.
Two, a month-to-month lease automatically renews every month until it’s terminated. A fixed-term lease doesn’t automatically renew after it ends.
Thirdly, to end a month-to-month lease, either party must send the other a notice of at least a month. With a fixed-term lease, the minimum notice period is three months.
Now you know what a month-to-month lease is all about. If you still have any questions, Cressman Realty & Property Management can help. We’re the go-to property management experts for Regina investment property owners. Get in touch to learn more!