Residential Leases on a Month-to-Month Basis vs. Annual Leases

Both monthly and yearly rentals offer advantages. They also have disadvantages. Take a peek to determine which one is right for you.

What you will discover:

The Fundamentals of Residential Leases
Residential Leases on a Month-to-Month Basis
Residential Leases on an Annual Basis

Both monthly and yearly rentals offer advantages. They also have disadvantages. Examine your options to find which one is best for you.

The Fundamentals of Residential Leases

A lease, whether residential or commercial, is a written contract between a landlord and a renter. It specifies how the property may be used, how long it can be used for, and how much it will cost. A lease agreement also contains additional terms and restrictions, many of which are governed by state law. A residential lease agreement may contain the following information:

Security deposit amounts and procedures for returning them
Penalties for late payments or failure to comply with lease terms and conditions
Termination due to nonpayment or breach of lease terms and conditions
Use restrictions, such as prohibiting the operation of a business on the land.
Both landlord and renter must have insurance.
Taxes and other property-related costs must be paid.
Maintenance duties of landlords and tenants
Number of pets and breeds permitted
Procedures for termination, nonrenewal, renewal, and rent increase/decrease
Capabilities for subleasing

Residential Leases on a Month-to-Month Basis

A month-to-month residential lease arrangement lasts for one month at a time and is usually renewed automatically unless the tenant or landlord gives notice of nonrenewal. The lease should state how much notice is necessary, which is normally 30 or 60 days.

The Benefits of a Month-to-Month Lease For:

Landlords – In a market where rents are rising and suitable renters are many, shorter lease arrangements for residential properties may be preferable, as they enable you to maintain your rental prices similar to those of others in the region.
Tenants – If you are going to move or buy a property, you may prefer the flexibility of giving just 30 or 60 days notice of nonrenewal.

The disadvantages of a month-to-month lease include:

Landlords – In a low-occupancy rental market, the possibly high turnover associated with shorter lease periods may be problematic, since new renters may not be available. A vacant unit means a loss of rental revenue.
Renters – Rent under month-to-month residential leasing agreements is also greater than rent under yearly leases. Your landlord may also choose not to renew your rental lease agreement before you are ready to relocate.

Residential Leases on an Annual Basis

A one-year residential lease agreement is normal, while two-year lease agreements may be necessary for higher-end buildings. Unless the tenant or landlord gives notice of nonrenewal, the lease normally includes an automatic transfer to month-to-month status. The rental lease agreement normally specifies how much notice is necessary to quit the property, which is usually 30 or 60 days.

Benefits of an Annual Lease For:

Landlords – In addition to having consistent rental revenue for a year or more, you save time and money on locating new tenants and preparing the property for move-in.
Tenants – You have a consistent and often reduced rental rate, plus you avoid the expenses of relocating, such as movers, new security deposits, and utility transfer fees, during that time period.

The disadvantages of an annual lease include:

Landlords – In addition to being unable to increase rent more than once a year, you may be left with a difficult renter, such as one with a continually barking dog.
Tenants – You may be caught in an unfavorable circumstance for a year or more. Using the same barking dog issue as an example, your property may be adjacent to a residence with a major noise problem over which your landlord has no influence.

Regardless of whether you select a landlord or tenant lease, add all relevant terms and conditions in the contract to keep everyone on the same page.