If you've ever looked for an apartment, you've probably come across the terms of the agreement in the listing. You'd likely see a long-term lease that asks you to rent for six months to one year. In some cases, though, you might see a month-to-month agreement.
It's important to understand what this entails and what you may be on the hook for. You don't want to end up owing money unnecessarily or find yourself in a sticky situation. While not right for everyone, month-to-month rentals have some specific benefits. If you think it might be right for you, check out the following for our insider knowledge on this type of agreement.
What is a month-to-month lease agreement?
Typically, landlords and property managers require residents to sign a lease agreement. This agreement guarantees that the tenant will reside in the unit for a predetermined amount of time, usually 12 months.
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A month-to-month rental contract covers 30 days and is automatically renewed at the end of the period unless the tenant or landlord ends it through a written notice. They're harder to come by and you'll likely pay more than you would under a traditional lease, but in some situations, it's worth it.
During a short-term lease, your landlord must provide the same basic services (e.g. keeping the property safe and livable) as they provide fixed-term renters.
Some differences between a fixed-term lease and a month-to-month rental
Unlike a standard or fixed-term lease, a month-to-month lease does not specify the end date of the lease. But, it's important to note that, should your landlord choose to raise your rent, you'll have to re-sign (or agree) to the change before it can take effect.
A typical 12-month lease comes with the caveat that if you break the lease early and move out before the year is over, you'll pay an early termination fee.
When the term is over for a fixed lease, it doesn't automatically renew. The landlord and tenant agree to a set rental rate that can't be changed for the duration of the lease.
Renews every month without a contract or verbal agreement
Flexibility, ease of moving, ability to convert to fixed term, no penalty for exit
Higher monthly cost, susceptibility to rent increases, impact on credit report
Specifies a finite period of time, always in writing
Lower cost, stability, locked-in pricing, firm end dates, ability to plan around move date
Penalty for early exit, limited flexibility, larger overall cost obligation
Long-term renters, families, career professionals, pet owners
Pros and cons of a monthly rental lease agreement
Is a month-to-month lease a good idea for your situation? You should weigh the pros and cons before you decide.
The pros of going with month-to-month rentals
Flexibility: A month-to-month lease gives you the flexibility to move out with short notice. You can end your lease whenever you need, but of course, you need to give your landlord the set required notice. This is typically 30 days' notice and should be made in writing.
No hassles: If you end up staying after the month and maintain the agreement, your lease will automatically renew for the following month.
You may be able to stay longer if you want: Most landlords want the stability of long-term tenants. When turnover happens, landlords need to cover the expenses that go along with tenant turnover, from cleaning costs to repairs. So, if you're happy with your rental and decide you want a longer-term lease, you might be able to easily convert to a standard lease.
When you're unsure about your immediate future: If you're not sure where you'll be in a month, then a month-to-month lease might work best. Recent graduates, newlyweds or job seekers often need temporary housing while they search for something more permanent.
If you're new to a city: They're also a great option if you're new to a city. Moving to a new place can be overwhelming, especially if you've never been there before. A month-to-month lease is a great option to give yourself time to learn the area, decide where you want to live and how much you can really afford to spend.
During a transition: Maybe you're in the middle of a transition but you already know where you'll be living eventually. If you'll be renting a unit that isn't quite ready in a newly-constructed apartment building or have just a few months before you make a big transfer at work, this would be a helpful option, as well.
The cons of going with month-to-month rentals
It might be pricier: One of the starkest differences between a traditional lease and a month-to-month lease is the ability of the landlord to respond to changes in your local market. If the market shifts, your rent may increase from one month to another. Since you're technically placed under a new agreement at the beginning of each month, your landlord can change the terms of the agreement at their discretion. On average, landlords may add $30 to $130 a month for short-term renters. If you're looking to rent in a big city, it might be even more expensive, as a report from Transunion revealed that 91 of the 100 largest U.S. cities have seen rent increases over the last year. The landlord is taking on a bigger risk by signing on a renter that may bounce on a whim, so they may end up charging you more to cover the costs of the move-out. These costs include repairing and prepping a unit, as well as advertising to find a new renter.
Your credit score may suffer: If you consistently sign month-to-month rental agreements, it may hurt your credit. Each time you apply, the landlord may pull your credit score. Frequent hard inquiries to your credit may cause your score to dip, possibly having an effect on future efforts to rent.
Should I sign up for a month-to-month agreement?
Don't let the “cons" necessarily put you off of the idea of a month-to-month lease completely. It may be a necessary and reasonable option for you.
When a month-to-month rental is a good option
You anticipate a big life change, such as a marriage or career change in the next year
You're a student who will only be in the area for a limited amount of time
You've recently moved to a new city and aren't sure where you want to live
Your career requires you to travel frequently. For example, you might be consulting on a project or completing your medical residency and only need to be in town for a few months.
You're planning to buy a home or your home is under construction
You have a roommate who can't commit to the full 12- or 18-month lease term. This will keep you from having to either illegally sublet their room or re-sign an updated lease with your landlord.
You don't have a ton of heavy furniture and can move quickly, if necessary. You should also feel confident that you can find a new home easily should it be necessary.
How to find a month-to-month lease
If you have a good relationship with your current landlord or explain your personal situation, you may be able to negotiate a month-to-month agreement. It never hurts to ask so you can find time to find the right housing.
The best way to find a month-to-month lease is to ask the landlord or property manager. You could offer to pay more than the listed rental rate each month, as well. Bear in mind that some loans prohibit the landlord from allowing tenants to rent month-to-month, so it may not be up to them.
How do I terminate a month-to-month lease?
If you've signed a month-to-month lease and want to break your agreement mid-month, you should expect to pay a penalty. You need to give around 30 days' notice to end a month-to-month agreement. The same rule typically applies to your landlord as well, if they want to terminate the agreement.
Keep in mind this varies by state. In some states, they can give tenants as little as a few weeks. In others, they're required by law to give 30, 60 or 90 days' notice before terminating your lease.
Just like a longer-length lease agreement, you may not get your security deposit or final months' rent amount returned to you if you end up moving out before giving the appropriate amount of notice to your landlord.
Some landlords will require you to continue paying rent until they're able to get a new tenant into your apartment. This makes breaking your fixed-term lease early both inconvenient and expensive.
Due diligence goes a long way
Having the ability to move out on short notice might be worth the potential added expense. Just make sure that you understand the terms of the lease. If you decide to take advantage of the month-to-month rentals and leave after a few months, give the landlord the proper amount of notice.
Also, no matter what kind of lease agreement you end up choosing, make sure you get it in writing.
Claire Tak is a writer who previously served as head of content and chief editor for FinTech companies in New York and San Francisco. Her work has appeared on FOX Business, Bloomberg and Forbes. She writes regularly about travel, money and being a good human. Traveling and snowboarding are her two favorite things to do.