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2021 guide for month-to-month lease agreements (free template)

small house on calendar
by Jeff Rohde, posted in Investment Strategy

Although 12-month lease agreements are frequently used in most markets, some landlords offer a month-to-month lease agreement to help keep their options open and offer more flexibility to the tenant.

In this article, we’ll discuss how a month-to-month lease agreement works, why some investors use monthly lease agreements, and how to write a month-to-month lease agreement.


Key Takeaways

  • Month-to-month lease agreements normally run from one calendar month to the next.
  • Monthly lease agreements provide the landlord and tenant with more flexibility, such as raising the rent more frequently or ending the lease with proper notice.
  • A month-to-month lease normally has an automatic renewal clause so that the lease renews each month until either the landlord or tenant gives notice to terminate the lease.
  • Most states require a 30-day notice to end a month-to-month lease.

 

What is a month-to-month lease agreement?

Lease agreements (also known as rental agreements in some parts of the country) can technically run for any length of time, depending on the needs of the landlord and the tenant. 

A landlord may offer to rent to a tenant for a fixed period of time, such as one month, three months, six months, 12 months, 24 months, or even longer. In residential rental real estate, it’s common to find long-term leases that extend for 12 consecutive months or short-term leases that run month-to-month.

A month-to-month lease agreement runs from one calendar month to the next. Monthly lease agreements often have an automatic monthly renewal clause written into the lease agreement so that the landlord and tenant don’t have to renegotiate and sign a new lease each and every month. 

Either the landlord or tenant may terminate a month-to-month lease with notice (usually 30 days). A landlord may also be able to raise the rent from one month to the next with notice, depending on the state landlord-tenant laws and local housing laws.

 

Why investors use a month-to-month lease agreement

In general, monthly leases can help investors keep their options open. 

For example, a tenant can be vacated from the rental property relatively quickly instead of waiting for 12 months to come to an end. A landlord may also raise the rent more often than once a year, to help maximize the rental income that the property could generate.

While those options might sound appealing, there are also some potential drawbacks to using a month-to-month lease agreement to consider as well.

Pros of a month-to-month lease agreement

  • Rent may be adjusted to market each month, provided proper notice is given and landlord-tenant laws are followed.
  • Attractive option for tenants who can’t commit to a longer lease term, such as renters relocating and just beginning a new job or university students looking for a shorter term lease.
  • Offers the landlord the ability to sell the rental property without a tenant in place .

Cons of a month-to-month lease agreement

  • Tenants may find a month-to-month lease agreement too risky if the landlord can raise the rent every month.
  • Higher cost of tenant turnover, such as lost rental income due to vacancy and more frequent repairs, could decrease the potential return from a rental property compared to leasing to new tenants on a long-term lease.
  • A landlord with a home that is difficult to rent may find that a month-to-month lease agreement leads to increased vacancy.

 

lease agreement

How to write a month-to-month lease

In general, a monthly lease contains the same information a 12-month lease agreement does. The main difference between a month-to-month lease and a longer-term lease is the term of the lease, or the expiration date of the lease, and an automatic renewal clause.

Below are common items that landlords include in a typical month-to-month lease:

  • Property address and unit number if part of a multifamily dwelling
  • Name and contact information for landlord (or property manager) and tenant
  • Monthly lease amount and due date
  • Additional rent payment for pets or roommates, if applicable
  • Provision for late fees if the rent is not paid when due
  • Security deposit amount 
  • Beginning and ending date of lease
  • Provision for automatic one-month renewals
  • Amount of notice required by landlord or tenant to terminate the month-to-month lease
  • Responsibilities of each party, such as who pays for utilities and how repairs are handled
  • Renters insurance requirement
  • Required notice before landlord may enter the property 
  • Consequences if tenant disrupts the neighbors or conducts illegal activity from the property
  • Property damage and use of security deposit, if allowed by landlord-tenant laws

 

How long does a month-to-month lease last?

A month-to-month lease typically goes from one consecutive calendar month to the next, oftentimes with an automatic renewal clause. For example, a monthly lease might begin on January 1st and end on January 31st

If neither the landlord or tenant provides a non-renewal notice to the other party, the month-to-month lease would then automatically renew for February 1st to 28th, month after month until either party gives notice to terminate the monthly agreement.

A month-to-month lease could also begin and end on a date other than the first and last day of the month, such as March 25th to April 24th. However, keeping track of each automatic renewal period can be unnecessarily complicated. That’s why a landlord may offer to prorate the first month of rent for the tenant. 

For example, assume the monthly rent is $1,000. Instead of collecting one month of rent in the amount of $1,000 for the period March 25th to April 24th, a landlord might:

  • Collect $1,000 in rent from the tenant for the month of April, plus
  • Charge a prorated rental amount of $225.82 for March 25th through March 31st  ($1,000 / 31 days = $32.26 per day x 7 days)
  • For a total rent collected of $1,225.82 

At the end of April, the lease would automatically renew for another month, unless the landlord or tenant provided a non-renewal notice to the other party.

Pro rating and collecting rent can help to increase the total cash flow a rental property generates, instead of having the home sit vacant for a week or more.

 

How to end a month-to-month lease

The amount of time required to change a term in a monthly lease, such as raising the rent or to end a month-to-month lease, is usually 30 days, but does vary depending on the state the rental property is located in.

In most states, landlords must provide a 30 days’ notice to end a month-to-month tenancy, according to the legal resource website Nolo.com

There are some exceptions to this rule of thumb, such as Connecticut only requiring a 3-day notice or the District of Columbia requiring up to a 120-day notice, depending on the reason for terminating the month-to-month lease.

Nolo.com publishes a chart of state rules on notice required to change or terminate a month-to-month tenancy on its website. Investors may also check with their real estate attorney or local property manager to learn more about the local laws governing month-to-month lease agreements for rental property.

A notice to end a month-to-month lease can be mailed or delivered in person, depending on the state. 

In some states, the notice must be provided before the beginning of the next monthly rental period. So, if a month-to-month lease ends the last day of April, notice must be given before April 1st so that the lease does not automatically renew for the month of May.

 

keys on cash

Can the rent be raised on a month-to-month lease?

Unlike a longer-term 12-month lease, the rent can potentially be raised on a month-to-month lease every month. However, investors should take care to ensure that the proper notice is given (usually 30 days), that the home is not located in a city where there is rent control, and that the landlord-tenant laws are obeyed.

Before raising the rent on a month-to-month lease, landlords normally run rent comparables to determine the fair market rent for similar properties at the current time. Some useful online tools to use to help determine the rent for a home are Rentometer and the Zillow Rental Manager. 

The Roofstock Cloudhouse Rental Calculator is also a good resource to use to calculate the rental potential of any single-family home in the U.S. In addition to an estimated rent range, investors also receive a forecast of potential return including key financial performance metrics such as cash flow, gross yield, cap rate, cash on cash, and total return.

 

Where to find a month-to-month lease template

A real estate attorney or local property manager are two resources for finding a month-to-month lease agreement template. Websites offering state-specific monthly lease agreements include:

 

Wrapping up

A month-to-month lease agreement can benefit both the landlord and the tenant. A landlord may customize a monthly lease to meet the needs of the tenant, such as renting to a university student. The rent on a month-to-month lease may also be increased more often than once a year, helping to increase the potential cash flow from a rental property. Monthly lease agreements can usually be terminated with a 30-day notice, offering a landlord more flexibility than a traditional longer-term 12-month lease agreement.

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