Month to Month vs. Annual Leases: Which Protects Landlords?

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When renting out property, many landlords want to lock in a new tenant as soon as possible, and they want to lock them in for as long as possible. It makes sense — until you begin to look at all of the commitments that you are making and how little of a commitment the tenant is making.

What are the advantages of a month to month lease vs. annual leases?

As soon as you know you are going to have a vacancy, you want to begin marketing. If your existing tenant is a slob, a hoarder, or being evicted, it is extremely difficult to attempt any turnover until you have a vacant unit. If it was a long term tenant, you just need to factor in a bit of vacancy time to clean up and repair, as well as some down time until you find a tenant.

If it was a one year (or less) tenant and you have to wait for the tenant to move out to show it, you can look in the mirror for your issue. You should have bypassed this tenant.

Get a Commitment Early

Once a new tenant has committed to a unit, you need to get a Holding Fee Agreement signed. You also need to get a holding fee of at least a month’s rent, the deposit, or possibly $1,000, whichever is less. You want this Holding Fee Agreement signed as soon as you get an application — or even sooner if possible.

Related: Why Annual/Term Leases Win Out Over Month-to-Month (Almost) Every Time

You will continue to show the unit until the new tenant passes the background check. Once the tenant passes the background check, you notify them that they passed. If they do not pass, refund their holding fee money. You can tell them they are preliminarily approved right away to keep their interest, but since they have money down, they are not continuing to shop.

Do Not Commit Too Soon

If you are showing an apartment that has a tenant, you need to be aware of the risks of signing a lease too early. If your tenant doesn’t move out, or if for any reason the rental is not ready, the new tenant has an agreement with you that basically states the following: “The landlord will provide the rental on a certain date, at a certain price.” If you cannot deliver it for any reason, you are in default of the contract or lease. You may be liable for any damages or hotel costs the tenant might have.

If you remember nothing else from this post, remember this: “A lease obligates the landlord; a holding fee agreement obligates the tenant.”

Having good tenants will pay off here; if you have good tenants, they will likely not only vacate the rental on time, but they will also leave it clean and ready to go. Sometimes tenants leave early, especially if they have a job transfer or are buying a house. Often, their new landlord will not be as savvy as you; they might offer to let them move in early, as they had a vacant unit, rather than a one-day turn.

Challenges with Evictions

If you have ever been to court for a lease violation, you know that it is nearly impossible to evict for a lease violation if the tenant contests it. A judge will determine if it is a “material” violation. Generally, the judge will also give the tenant a chance to rectify the issue, maybe even 30 days to clean up their act.

Scenario #1: Pets

If your tenant was dog-sitting for a few weeks and you have a no-pet lease, the issue is resolved before it ever gets to court. You have nothing to evict over. You have a damage deposit for any damages. The dog is now gone. You have wasted time and money with an eviction.

Or maybe the tenant gets a new dog for a family pet. You saw the dog on several occasions, and you told the tenants to get rid of it. You accepted rent for the next couple of months, and each time, you reminded the tenants to get rid of the dog.

A judge will never evict over either of these scenarios. Once you notice a lease violation and you do not act decisively to evict over it, you have implicitly given permission for the violation. You have set precedence by taking rent knowing a pet was there. And if the pet suddenly becomes a therapy dog, you are at risk of being sued.

Scenario #2: Extra Occupants  

Your tenant moves in a boyfriend. He doesn’t have a lease anywhere, but has a driver’s license that has a different address. He is possibly the father of the tenant’s kids. Maybe he is on probation or just got out of jail. As long as the lease signer is not on any kind of program where they are not supposed to be living with anyone else, you will likely not be able to evict over that scenario.

A judge knows kids need parents, that there is no cause for you to be concerned, and that you have a damage deposit for any damages. If the person gets in trouble, their probation gets revoked. You will likely have a hard time convincing a judge that you are being “harmed” by the extra person. A judge will likely not remove a child’s parent who is trying to “reconcile” with their spouse.

Scenario #3: Short Notice Move Out 

Your tenant is just six months into a yearlong lease. They decide they want to move across town — or across the country. They pack up and move and tell you that they left and are not paying rent anymore. If you are lucky, they give you the keys, turn off the utilities, or send you a letter terminating the lease. All these items indicate that the tenants are giving up possession of the unit.

Otherwise, you might have to evict a vacant unit.

If the tenants have not provided any evidence of termination of possession, maybe you got lucky, and they gave you a forwarding address or other contact information, so you can get an official change of possession if they neglected to explicitly give you one.

Regardless of possession, you have a contract, so you take them to Court for lost rent. The damage deposit covers damages and a month’s worth of rent, but you want the remaining six months of rent. After all, a vacant unit is easy to manage if you can keep collecting rent.

A judge might award you two months’ worth of rent, one of which was paid by the deposit, but only after the end of the lease or after you have it re-rented. They cannot grant any damages for months that have not passed, as you have not suffered damages for those future months yet. And if you go six months being vacant, whose fault is that? A judge might say you should have tried to get the place rented sooner.

And what happens if the original tenant suddenly returns and expects to get back in the unit that you have already re-rented?  They have a lease that runs concurrently with your new tenants. If they take you to Court, you could have an issue.

Month to Month Lease vs. Annual Leases

The first defense against these scenarios is to get better tenants. The second defense is to have a month-to-month (M2M) lease, not an annual lease. A M2M lease will protect you, the landlord. With a M2M lease, you can issue a notice to move out and not even give a reason.

As a matter of fact, no reason is the best reason. No one can infer any illegal lease termination reason(s). If you evict for staying after a lease termination, or a holdover, there is no defense for the holdover. The tenants were given plenty of notice to move, and they stayed.

Related: 5 Easy Landlord Tips You Probably Aren’t Following (Including the One I Failed At Last Month)

Only use yearlong leases for tenants who have proven their ability to honor commitments. A tenant with a 620+ credit score is a “C” grade, which is the starting point to begin to offer a longer term lease. In addition to having a decent credit score, a tenant worthy of a longer term lease would have income of at least 3.5x the rent. And they would have job stability — at least two years in the same job or occupation. If you have ever tried to garnish wages, you know that you cannot get anything from a job hopper.

The landlord game is not hard, but it is a continuous exercise in risk mitigation. Lowering your risk with better tenants, larger deposits, and faster evictions or move-outs is the key to success.

What experiences have you had with short vs. long term leases? Have you ever known anyone who took a long time to get a tenant out?

Let me know your experiences and lessons learned in the comments section.

About Author

Eric D.

Eric is a 55 year old, soon to be former, computer professional. He started several years ago to replace his “work income”, with other alternate streams. He is well on his way to retirement at age 56, and is currently making more money at extracurricular activities, than he is working at his full time job. Whether that is Financially Independent, or just old fashioned entrepreneurial spirit, is in the eyes of the beholder.


    • My credit score was below 620 because I had consumed to much credit card debt to move. I paid off all my debts instead of going to bankruptcy court, which only made it worse from collection activities – but I paid ALL MY DEBTS OFF.I missed my rent payments by less than 5 days late, on two occasions in 3 years. Basing your decisions on credit scores is stupid, and you deserve all the lousy tenants you get. If it was so effective, you wouldn’t be writing stuff on how to deal with bad tenants, now would you.

  1. Curtis Bidwell

    M2M has saved me many times! Worst case: had an allegation of child molestation. No police, no doctor reports. But it was evident something traumatic took place. I asked the parents of they wanted to stay which they did. I told them it will take 1 month to move out the alleged molester. I gave him a 20 day No Cause Termination of Tenancy. The wife threw a fit but the fellow obviously understood what was happening. They were gone at the end of the month.

    I have some people express concern over the possibility of constant rent increases on a M2M. How do you respond?
    Thanks for the good article.

    • Katie Rogers

      When I was a tenant, I insisted on M2M because I want to be able to leave without fuss if the landlord turns out to be terrible. If the landlord was good, I stayed, usually for many years. In my experience, most good landlords so appreciate great tenants that they would rather forego a rent increase than roll the dice on a new tenant who could end up losing them money even with the rent increase.

  2. My husband is an HVAC guy. Every time he goes in a house or apartment that has been vacated badly, I hear the stories. He told of these tenants who poured molasses down all of the heating vents. He told of the tenants who stripped all of the copper out of the walls. He told of the tenants who let their pets use the house as a giant litter box. If you haven’t had any of these problems, Mr. No Nonsense, God has greatly blessed you indeed and may he continue to do so!

  3. Bruce runn

    I only rent on a month to month basis. All of my properties are in a high demand area and I don’t have hardly any downside including renting in the winter. I’d much rather face the small possibility of a missed month’s rent in case I have a longer time renting than be locked in with a bad tenant. Evictions take time and money. I only need to “non renew”. It has been very effective as I get better than average tenants as I can be selective. My tenants are almost always multiple room mate situations so it’s a win to them in case one of them loses their job or wants to move out. In most cased, they just pick up another room mate as they like my properties and locations. I’d hate to go through the process once someone stops paying or begins to violate the lease. They all know they could be out in approx. 30 days.

  4. As always, a great article, Eric. One person did ask the question about tenants being concerned about continued rent increases in M2M leases. Is there a way to handle this diplomatically/legally without signing a different lease? I am fortunate to be in a hot rental market, but don’t want to lose good tenants by only using these leases. Although you did say to use M2M on bad tenants only. So much to learn about rentals… Thanks for sharing, Eric!

  5. Hi Eric, great explanation of the M2M lease arrangement. I use the M2M with my tenants too. I almost laugh when their eyes sparkle like “wow no long term commitment” but I found in the past that a 12 month lease only ties up one party, unfortunately it’s the landlord. Often it feels a little “hairy” handing over the keys with only a security deposit and a months rent in hand but if the property is a quality unit, fairly priced, in good order and I pay attention to the details and maintenance, tenants tend to stay longer than the year lease would have tied them up for.

    I also think there is something psychological about a 12 month lease in that as that date nears people are spurred to action thinking “its getting close to the time to move” or “its lease renewal time, we ought to compare rents before we resign”. With the M2M there is no “trigger” as the last day of every month is an opportunity to leave and people don’t feel locked in. Move out is only 30 or 60 days away at any given point, there is no long term roll over commitment and the BIG point… ta-da like Eric said, you can terminate the lease without needing a battery of lawyers racking up bills while trying to mitigate your rental loses.

    • Eric D.

      Thank you for the comment!

      Exactly my same thoughts. Almost all of my tenants are on a M2M lease after the initial year. Mostly because I am a bit lazy and never got around to a renewal. If a tenant wants a new lease, I get one right away.

      You made a great point about the trigger to move, something I have always though of too. If a tenant is having temporary difficulty with the neighbor or school district, the lease end might cause them to move. In a M2M situation, they might wait it out a month, and the situation resolves itself. No need to move, you can move next month. since people are procrastinators by nature, it works out great.

  6. Julie Greene

    Great, timely article for me to read Eric, thank you! Have been weighing whether to move forward with annual or M2M lease for a property we hope to close on soon, and this has been very helpful.

    Terry, great point about there being no “Trigger” date for a m2m lease – I think that makes total sense!!!

  7. Andrea Shields on

    Thank you for the very informative article. I have all my tenants on annual leases, except one who opted for M2M when it was time to resign her lease. I thought it was a godsend as I had purchased the home with this particular tenant and hoped she would move soon. In May of this year after several months of issues and excessive late payments I decided to file for 15 days notice for this tenant to move. On June 1st tenant became a holdover tenant and I filed the proper paperwork, tenant rebutted the eviction and we had to go to court as the judge decided to make this about rent which was never the cause of the eviction. The judge gave the tenant until June 26 to pay past due rents to the court and then pay each month ontime to the court. The tenant did not pay and ended up being thrown out 3 days ago by the sheriff leaving behind the worst damage you could imagine and a loss of 3 months rent. Now everything was filed appropriately this judge I guess decided to be lenient with tenant. I am sharing this as this process usually works and in the state of Florida evictions etc are pretty easy but this one did not work that way.

  8. Kevin Izquierdo

    “As long as the lease signer is not on any kind of program where they are not supposed to be living with anyone else, you will likely not be able to evict over that scenario.”
    How would you know the extra occupant is telling the truth about not being in these programs?

    Great article by the way, I have been weighing in the options on m2m and year leases. My friend told me he does 6 month leases and if the tenants are good, he switches to yearly.

  9. Derek Mon

    Reading this in 2017! Thanks for the helpful article, just became a landlord recently and my first lease I signed was a month-to-month. Its only been less than a month in, but I feel fairly confident with this knowing that we could end the lease with 30-days notice. Before this, I had thought annual leases were the preferred method (which probably is in many scenarios), but as a first time land lord I feel more confidence with this kind of structure for experience. Question – how do you increase rent while on a month-to-month lease?

  10. Craig Stephens

    This has been a very interesting article. I’ve never considered month to month and have 2 great renters that always pay on time so the annual lease sounds good, but the eviction costs and potential for damage if things go south are scary. I guess you keep the same lease and addendums as you would for a year lease? What language changes do you put in a month to month lease?

    • Eric D.

      Thank you for reading!

      The only difference is the lease expiration date. The notice period should be the maximum allowed by law, here in MN it would be 57 days for a month-to-month lease.

      People stay until they want to leave. Good tenants honor the lease. Poor quality tenants move out when they want, regardless of the lease.

      A lease protects the tenant, not the landlord (assuming the landlord is a responsible one).

  11. Andrew A.

    I have to say I kinda lean towards the M2M especially once you tested the waters with a 1 year lease (that goes to M2M once expired) and notice that the tenants are not a good fit.

    This is definitely applicable to cities where the tenant pool is subpar and housing is more affordable where anyone with a decent salary would be buying instead of renting.

    • Thank you for reading!

      Just to clarify, you start with a 1-year lease, then go to MTM to test a tenant? To me, that is backwards. I would rather get rid of a tenant after a month if they were subpar.

      Also, when you get a better tenant, as evidenced by a solid 625+ credit score (which is still low), you will lessen the subpar tenants. Keep a 625 for all occupants, 18+.

      I have tenants that can easily buy a place, but prefer to rent. They are out there if you market to them and price correctly.

    • Why does your instinct tell you that? Is it because MTM tenants are trapped by a lease? Lots of tenants stay for years on a MTM. Even if your instinct might be correct, the lower vacancy rate might be disguising the difficulty tenants have of escaping a bad landlord.

      • Thank you for reading!

        I have tenants stay for years even with MTM. I have had tenants break a annual lease with little notice and their only risk is the deposit.

        You can take a tenant to court, but if they have little or no money, it does no good.

        A really low quality tenant will be sure t use up the deposit in rent before they move out in the middle of a lease.

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