Fixed-Term vs. Month-to-Month Leases: Which is Better for You?
When signing a lease, it's important to read through and understand all of the important rules and conditions outlined by your landlord. One of the most important things to consider is the length of time that the lease agreement covers. You'll typically come across two options when it comes to the length of the lease agreement: Fixed-term agreements or month-to-month.
Wondering which type of lease will work best for you? Here are the pros and cons of each lease option you should consider when making your decision.
What's a fixed-term lease?
A fixed-term lease, or term lease, refers to a rental lease agreement with a designated start date and end date. Typically, term lease agreements range from six months to one year in length. However, term lease agreements can cover shorter or longer periods of time, depending on your landlord and specific situation.
At the end of a term lease, the tenant will either move out on a specified date, re-sign a new fixed-term lease or the term lease may transition to a month-to-month agreement. Your rental lease should provide explicit details on what will happen at the end of your fixed-term lease agreement.
Benefits of a Fixed-Term Lease
- Fixed rental rate: During a fixed-term lease, landlords aren't permitted to change the rental rate mid-term. They may, however, change the rental rate when the term is up.
- Set lease terms: It's difficult for landlords, property managers or tenants to change any rules, terms or conditions outlined in a fixed-term lease. Whatever was stated in the original lease – as long as it complies with state laws – will be the terms and conditions the landlord and tenant must uphold. Property managers cannot institute new rules, fees or other conditions in the middle of a term unless both parties mutually agree to an addendum.
- Guaranteed housing: As long as both parties are upholding the terms outlined in the lease agreement and following local landlord-tenant laws, a landlord can't make a tenant move out mid-term.
Drawbacks of a Fixed-Term Lease
- You can't move: During your tenancy, you may experience some sort of life event that makes you want to change your living situation. Examples might include job loss, job opportunity in a new location, a family emergency, breakups or medical situations. Typically, in order to move before a lease term is over, renters will have to pay a lease-breaking fee.
- Renewal fees: While a benefit of fixed-term leases is a set rental rate for a given period of time, at the end of the lease, most landlords will take the opportunity to reevaluate the rental rate and pair a lease renewal with a rent increase. When you're on a month-to-month lease, your landlord doesn't have a set end date every year and therefore will generally have fewer clear opportunities to think about rent increases.
- Forced to live with the good and the bad: Whether you're unhappy with your neighbors, your property management company, your roommates or your appliances, you might be forced to deal with an uncomfortable living situation until your lease term is over. Of course, there are often steps you can take to improve these situations, but sometimes specific scenarios – like clashing personalities – are difficult to overcome.
What's a Month-to-Month Lease?
Just as it sounds, a month-to-month lease agreement provides terms and conditions of tenancy for one month. Tenancy and lease terms typically renew automatically at the end of each month.
If a tenant wants to move out or the landlord wants a tenant to vacate the property, the lease will explicitly state how much notice must be given. The amount of notice required to change a lease term or to end the tenancy in a month-to-month agreement is usually dictated by state and local laws but is usually in the range of 30 to 60 days.
Benefits of a Month-to-Month Lease
- Easy-to-change lease terms: In order to change a lease term, your landlord must follow state and local laws for providing proper notice to tenants. Your landlord may choose to change a lease term for things like updating a pet policy or adding included property maintenance.
- Easy to move: If a renter wants to move out (or if a landlord wants a tenant to move), it's a fairly easy process with a month-to-month lease agreement. The tenant needs to provide notice to management stating that he or she plans to vacate the premise on a certain date. If the last day of tenancy is mid-month, the tenant will typically pay a prorated rent.
Drawbacks of a Month-to-Month Lease
- Security vs. flexibility: While a month-to-month lease means renters have the flexibility to relocate each month, your landlord has the same option to end the lease without cause. Landlords who deal with month-to-month lease agreements can provide tenants with a notice of nonrenewal at any time, at which point renters will have to find a new place to call home.
- Rent increases: As rental rates continue to climb, it's often month-to-month renters who feel the biggest impact from rent increases. State laws specify how much notice a landlord must give before implementing a rent increase on a month-to-month lease, but few state laws put a cap on the amount or number of times rent can increase in a given year.
So, which is better?
Both fixed-term and month-to-month lease agreements have pros and cons for both renters and landlords. Location, property type and types of tenants can all impact the type of lease term a landlord decides to offer his or her tenants.
Regardless of the type of lease term, renters always have the option to negotiate with landlords or property managers and ask to change the terms of the lease before signing the agreement. A property may be advertised as a year-long lease, but a renter can ask the landlord if they can sign a six-month or month-to-month lease instead. Not every landlord or manager will agree to your request, but you always have the option to ask for changes that will better fit your lifestyle.