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A month-to-month lease agreement is used by landlords who rent out their property on a monthly basis.

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Sample Month to Month Lease Agreement

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What is a Month to Month Lease (MTM)? 

A month-to-month lease agreement is used by landlords who rent out their property on a monthly basis. These types of agreements may be used for temporary housing, college apartments, or long-term tenants who have lived in a particular rental for a number of years. They do not have a specific time period and either party can cancel it, usually with a month’s notice. As opposed to a long-term lease agreement, a MTM lease enables either party--tenant or landlord--to alter or terminate the lease on a monthly basis. Changes to a MTM lease typically require a 30 day notice. If no changes are made, MTMs automatically renew at the beginning of each month and continue to do so until either party terminates the MTM lease.

Like other rental contracts, this agreement should include responsibilities for both parties, the landlord and the tenant. The lease should include financial information, such as rent amount, what utilities the renter is responsible for, repair fees, and any other expenses. It should additionally outline policies regarding pets, number of occupants, parking, and more. Both parties will need to review and sign the lease before it is officially recognized.

MTM vs Fixed Lease

 

A fixed-term lease is the most common type of lease agreement. Here, the lessee agrees to stay in the residence and pay rent for a fixed period of time (as indicated in the contract). These forms of agreements do not allow the tenant to end the lease before the fixed term without significant financial loss or termination fees. Although these repercussions do have limitations, they are not as flexible as month to month leases.

A month to month lease allows the flexibility of both parties to alter or terminate the lease with a 30 day notice with no repercussions. Although this type of lease is often ideal for those who may want more flexibility without the chains of a long term lease, it does come with its own share of drawbacks. MTM leases give landlords the flexibility to raise rent, or evict tenants with the same 30 day notice.

MTM vs Annual Lease

Whether you are a tenant or landlord, there are many advantages and disadvantages to both MTMs and fixed-term leases. Let’s take a look at some of those:

MTMs for Tenants

Pros:

  • Flexibility: If you are looking to “try out” a neighborhood and are not ready to commit to it long-term, or if you think you may move within 6-12 months (either to purchase or to leave the area), a MTM might make sense for you.
  • No Penalty: MTMs charge no penalty for breaking the lease. A MTM comes with an understanding that, at some point, either the tenant or landlord will break the lease.
  • You can usually switch: Often, tenants with a MTM agreement can switch to a long-term lease if they choose. So if your situation changes and you want more stability in your current apartment, you can typically convert your MTM to a fixed-term lease.
  • Furnished: It is not uncommon for MTM units to come furnished. Therefore, if you are not interested in buying an apartment’s worth of furniture, a MTM might make sense.

Cons:

  • Cost: MTMs, especially those that did not begin as a long-term lease, are often more expensive. Landlords typically offer lower rents to long-term lessees because they commit for an extended term. With a MTM, you may miss out on signing incentives like rent concessions or other benefits that are only available to long-term lessees.
  • Instability: In an MTM, your landlord can increase your rent each month, and without much notice, depending on your area. Similarly, your landlord can terminate your contract and evict you, generally without cause, with little notice (30-60 days). Further, during that period, the landlord can show the home to prospective tenants, which is a big hassle.

MTMs for Landlords

Pros:

  • Flexibility: With a MTM, it is much easier to evict a tenant in the event they are late with rent payments, are not taking proper care of the unit, or are not following local codes and ordinances.
  • You can also raise rents more frequently as the rental market adjusts. Raising rents require only 30 or 60 days notice (depending on where you live), so as demand increases, you can more quickly respond by increasing rent and thereby maximize your profit.
  • Furthermore, if you are unsure about your future plans for your rental property, MTMs grant you the flexibility to act whenever you decide. Say, for example, you are considering selling or renovating the property. With a MTM, whenever you decide how you want to proceed, you can act quickly, rather than having to wait months for a long-term lease to expire.

Cons:

  • Flexibility (for tenants): On the one hand, the flexibility of a MTM allows you greater flexibility to adjust rent and choose tenants. On the other hand, it also affords greater flexibility to tenants to leave at any point. Therefore, MTMs increase your opportunity to maximize profit but also increase the possibility your unit remains vacant (and therefore does not generate rental revenue) for extended periods. This can function as a sort of check and balance on rental increases. Regardless of what your tenant can afford, if you are constantly raising rents, they’re likely to vacate.
  • Eviction: In theory, a MTM gives you greater authority to evict undesired tenants. However, depending on where you live, there are generally still tenants rights laws you have to abide by, regardless of the term of a rental agreement. These laws outline when you can, and cannot, evict a tenant. Therefore, some believe the eviction process may not be any easier with MTMs.

Here is a breakdown of when you can legally evict a tenant:

  1. Non-payment of rent: in this scenario a landlord must initiate a formal eviction process whether the tenant is in a MTM or long-term lease.
  2. Property Damage: Both MTMs and long-term leases have language that permits eviction in the event the property is damaged.
  3. Criminal/Police Issues: Most courts accept a police report as a valid reason for eviction.
  4. Neighbor conflict: if your tenant’s actions prompt a neighbor to call the police, and they have a valid reason for doing so, the landlord often has the ability to evict, regardless of the lease term.

MTM vs Purchasing a House

Purchasing

Pros:

  • Tax Deductions: Homeowners can deduct, up to a certain amount, property taxes and their mortgage interest from their taxable income.
  • Remodeling Freedom: As a homeowner, you can do whatever you want to your house (so long as it complies with local zoning and building laws), without permission. Renovations and remodeling, moreover, typically increase the value of a house.
  • Equity: Although there have been a few high-profile housing market collapses (e.g. 2008), on the whole and over the long-term housing is usually a good investment. As an owner, therefore, you are likely to accrue significant equity through homeownership.

Cons

  • Expenses: Sure you can deduct the mortgage interest and property taxes, but you still have to pay them each year, which amounts to thousands of dollars renters simply are not on the hook for. Additionally, there are significant up front costs--closing costs, inspector’s fees, etc.--you likely will not recover in equity for several years. Therefore, if you plan to live in an area for a short time, purchasing may not be the best option.
  • Maintenance: As a homeowner you, rather than a landlord, is responsible for all maintenance and repairs to your home.

Renting

Pros:

  • Flexibility: Renting, especially with a MTM agreement, affords you the flexibility to move at will and with minimal notice and expense.
  • Free maintenance: If something breaks in a rental, your landlord is responsible for covering the cost of repairs, scheduling service, etc.

Cons:

  • Cannot personalize the space: Yes, you can furnish the domicile as you choose, but you cannot renovate, upgrade, or even paint without the permission of your landlord.
  • No Equity: Any equity accrued in the domicile while you live there is the landlord’s, not yours. Additionally, unlike mortgage payments, you will never recoup any of your rent money.
  • No tax breaks: Unlike mortgage interest, your rental payments are not tax deductible.

Best and Worst Cities for a MTM Lease

July 31, 2018

Infographic of best and worst states to have a month to month lease.

Methodology

Our team at FormSwift wanted to determine which major cities are the best and worst to have a month-to-month lease. We created a ranking of the top 20 cities by evenly weighting the following factors into a final score out of 100: median rent of a two-bedroom apartment in the city, month-to-month rent change in the city, average cost of living in the state, and hourly wage required to afford a two-bedroom apartment in the state.

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