Month-to-month and annual leases both have their benefits. They also have drawbacks. Take a look to see which might be better for your situation.

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Residential Leases: The Basics

A lease, whether residential or commercial, serves as the written agreement between a landlord and tenant. It says how the property can be used, for how long, and how much it will cost. A lease agreement also includes other terms and conditions, many guided by state law. A residential lease agreement may include information about:

  • Security deposit amounts and the procedure for their return
  • Penalties for late payments or violation of lease terms and conditions
  • Termination for nonpayment or violation of lease terms and conditions
  • Use limitations, like not allowing the operation of a business on the property
  • Insurance requirements for both landlord and tenant
  • Payment of taxes and other fees associated with the property
  • Landlord and tenant responsibilities in terms of maintenance
  • Number of pets and breeds if allowed
  • Termination, nonrenewal, renewal and rent increase/decrease procedures
  • Subleasing abilities

Month-to-Month Residential Leases

A month-to-month residential lease agreement lasts for one month at a time and typically involves an automatic renewal unless the tenant or landlord provides a notice of nonrenewal. The lease should specify the amount of notice required, usually 30 or 60 days.

Pros of a Month-to-Month Lease For:

  • Landlords - In a market where rents continue to rise and available tenants are plentiful, you may prefer shorter lease agreements on residential properties, as they allow you to keep your rental rates comparable to those of others in the area.
  • Tenants - If you are looking to relocate or to purchase a home, you may want the flexibility that comes with being able to give only 30 or 60 days notice of nonrenewal.
Cons of a Month-to-Month Lease For:

  • Landlords - In a rental market with lower occupancy rates, the potentially high turnover associated with shorter lease agreements may prove problematic, as new tenants may not be at the ready. An apartment without a lease equals loss of rental income.
  • Tenants - Rent under month-to-month residential lease agreements also tends to be higher than with annual leases. Your landlord also may decide to not renew the rental lease agreement before you are ready to move.

Annual Residential Leases

An annual residential lease agreement typically runs for a one-year period, though two-year lease agreements may be required for higher-end properties. The lease typically includes an automatic transition to month-to-month status unless the tenant or landlord provides notice of nonrenewal. The rental lease agreement typically states the amount of notice required to vacate the property, usually 30 or 60 days.

Pros of an Annual Lease For:

  • Landlords - In addition to having stable rental income for a year or longer, you eliminate the need to spend time and money finding a new tenant and preparing the property for move-in.
  • Tenants - You have a stable and an often lower rental rate, and you do not have the costs associated with moving, like movers, new security deposits and utility transfer fees, during that time period.
Cons of an Annual Lease For:

  • Landlords - In addition to not being able to raise rent but once a year, you also may be stuck with a troublesome tenant, like one with a constantly barking dog.
  • Tenants - You may find yourself stuck in an unfortunate situation for a year or longer. Using the same barking dog scenario as an example, the property you could be next to a home with a serious noise situation, one your landlord has no control over.

No matter which type of lease you prefer, whether as landlord or tenant, include all necessary terms and conditions in the document to keep everyone on the same page.

Get started Start Your Residential Lease Answer some questions. We’ll take care of the rest.

Get started Start Your Residential Lease Answer some questions. We’ll take care of the rest.