As a landlord, you typically lease rental properties for 12-month periods. One year is a standard amount of time for people to comfortably decide where they will be in the year to come. Many tenants will want to renew for another 12 months. Others will have experienced life changes that will take them somewhere new. In a few cases, your tenants may want to temporarily extend the lease on a month-to-month basis.
All three options are perfectly normal. The question is, which one do you prefer as the landlord or property manager? Should you offer the tenant a lease renewal for another 12 months or extend their lease on a month-to-month basis?
Let’s talk about the pros and cons of each option.
When Does a Lease Automatically Renew Month-to-Month
When a lease expires, ideally the tenant will either have signed a renewal for another year or already be packing their moving truck after having given you the appropriate notice. However, life isn’t always perfectly tidy. If a tenant is still living in the property when their lease runs out and they haven’t signed a renewal, the lease will likely default to a month-to-month renting situation.
Some (but not all) states require that leases default to month-to-month. Even in states where it is not required, it is typically considered a leasing best practice because it provides flexibility for both tenants and landlords when personal schedules don’t quite line up with lease timing. Many landlords will offer a month-to-month option at a higher rent amount than they would a full lease renewal.
Renew for Another 12 Months?
For most landlords, tenants who renew every year are ideal. Long-term tenants provide stability and predictability. Of course, whether a renewal is desirable should be determined on a case-by-case basis. Let’s look at the pros and cons compared to transitioning to a month-to-month rental.
- Pros
- Tenant stability
- No turnover cost or procedure
- No need to worry about tenant acquisition for another year
- Opportunity to raise the rent by a small increment
- Cons
- Potential for locking in an undesirable tenant
- Potential for broken lease if the tenant is considering a move
- Possible restriction from greater rent increases
- No chance for significant maintenance while the unit is empty
Allow Tenants to Rent Month-to-Month?
While lease renewal is the standard way to do things, there are many situations where defaulting to a month-to-month deal is the right answer. Tenants who will move soon or whose situation is uncertain often appreciate the chance to stay a little longer than their lease without a full-year commitment.
Landlords may also choose to provide month-to-month rental instead of offering a lease renewal if you don’t want the current tenants to stay.
- Pros
- Allows flexibility for tenants with uncertain plans, or who will move soon
- Allows landlords to gently reject non-ideal tenants with time for them to move out
- Higher rental rate during month-to-month payment cycles.
- Gives you extra time to prepare for the turnover process
- Plan an interval of significant maintenance when the tenant leaves.
- Potential to significantly raise the rent with the next tenants
- Cons
- Less stable than a yearly renewal
- Creates uncertainty in your schedule
- Not clear when you can tell new tenants they can move in
- Often represents a more chaotic period for your rental
Deciding to Renew or Go Month-to-Month when the Lease Ends
When your tenant’s current lease ends, you both have a choice. You can choose to extend a lease renewal offer so they can commit to another year in the home. They can also choose to stay for a few months beyond the end of the lease without renewing by renting on a month-to-month basis.
If you extend an offer and your tenants choose to sign a new lease, you both will enjoy another year of routine and stability. If they choose to rent month-to-month, you gain the higher month-to-month rental rate in trade for some amount of uncertainty about your tenant’s move-out schedule.
Communication is key. If you are going to offer lease renewal, extend the offer at least a month (if not two) before the current lease ends. And if tenants go month-to-month, keep in touch so you get at least a month’s warning to start advertising for new tenants and planning your turnover process.
Planning Ahead for Clear Lease Policies
Whether you renew or your tenant goes month-to-month, clear lease policies can help keep your rental property management tidy and efficient. Contact us today for resources and software to empower your property, tenant, and lease management.
