Has anyone ever dealt with a shorter lease (less than 12 months)

Question

If a tenant wanted a shorter lease (7-10 months), then month to month, is it worth it?  Has anyone done this?  Would you increase rent on the lease?  Then increase it again on the month to month part?  How many months ahead should they give notice?

Wesley W. · Answer

I ONLY offer MTM leases.  45 days notice to vacate.  If you are in a tenant friendly jurisdiction, I would strongly recommend considering it.

I've always found that the term leases (anything over 30 days) always obligate the landlord, but never the tenant. I only offer month-to-month (MTM) leases in my properties.  Here's why:

Let's say I sign a tenant to a one-year lease, and 3 months in, their personal/professional situation changes, and they break their lease and move out after a 30-day notice (or maybe less).

I am required, by law in most areas, to mitigate my loss by remarketing the unit, making it rent-ready, and starting up my lead generation machine to get applicants, funnel them into my screening system, identifying good candidates and ultimately leasing them up. This takes a LOT of my time.

If I went to get a judgement against this tenant for the balance of the lease (if I could even find them to serve court papers), the judge would tell me to go pound sand, absorb it as a business expense, go re-rent the apartment, move on with my life and quit bothering him with this "nonsense."

Another situation. Joe "pain in the a$$" Tenant just moved in after signing a year lease. He is noisy and obnoxious and leaves trash in the common areas. I get numerous complaints from my "good" tenants, complaining about Joe. Joe's lease has provisions against this, so I properly serve him a "10 day notice to cure" using a process server ($$). He gets better for a bit, then goes back to his old ways. So, I serve him again ($$). This goes on.

I finally get so fed up that I serve him ($$) with an eviction notice for breach of lease. I spend time and money getting the petition and go to court. Joe tells the judge he "promises" not to do it again and shows receipts from all his on-time rent payment, so the judge gives him "one more chance. " Invariably, I'm back in court AGAIN. I may or may not get a warrant for eviction this time, but meanwhile two of my good tenants have moved out, exasperated by their neighbor, Joe, and his reprehensible lifestyle.

Sure, my lease states that Joe is financially responsible for my expenses associated with the enforcement of the lease provisions, but good luck with that.  As many are aware, getting a judgement is one thing, but collecting on it is quite another.

In each of these examples, the lease favors the tenants, and at the same time limits my rights as the landlord.

My month-to-month leases give me the right to terminate the lease for no reason or any reason, including being an "a$$." If they don't leave, I get a holdover eviction warrant on them. I find this is a MUCH easier judgement to get than for breach of lease or even non-payment, since the tenant can "cure" his non-payment by showing up to court with the unpaid balance. Meanwhile, next month he starts neglecting rent payments all over again, planning to "catch up" after I've spent more time and money to get him back into court.

I always found that GOOD tenants love the flexibility that the MTM lease affords them if their personal or work situations changes. I tell them I don't want anyone living in my properties that doesn't want to be there, and that is precisely what would happen if they signed a year lease and their situation changed.

I explain to them I am not in the business of whimsically kicking people out, because that costs me money (see the lead generation paragraph earlier in my post), and my goal is to find really good people to call my properties home and then take good care of them so they want to stay a long time. In contrast, bad tenants don't like the MTM leases (another form of self-screening) because they know they'll be out on their ear in 45 days. So, if a tenant pushes back on the MTM, to me that's a red flag, because there really is no down side for them unless they are up to no good.  If they are good tenants, they don't worry about it for a single second because they expect to follow the rules, and they rest easy at night knowing their neighbors will have to do the same or be made to leave.

JD Martin · Answer

We do 1 year leases on new tenants for the following reasons:

1. It's common in my market;

2. It demonstrates some (theoretical) level of commitment by both sides to having a successful beginning relationship;

3. It provides price certainty to the tenant for at least the first year.

Beyond that, whenever a lease concludes we always roll them M2M. It's better for me - I can get rid of you whenever I'm sick of you - it's better for the tenant - they can buy a house or find something bigger or nicer or cheaper or in another town whenever they want - and it doesn't change the enforcement of all other parts of the lease. If you do this long enough you'll find tenants just leave whenever it's necessary for them, so don't think a lease is going to prevent vacancies.

Based on this thread and your other thread you're either in a bad area, an oversaturated area, have a bad property, or are overpriced. You can usually cure any of those things with a lower rental price. So I'm guessing you are overpriced based on what your current market is telling you.

Wesley W. · Answer

I think your fear is without basis.  There is a mutual benefit to MTM contracts.  I challenge someone to show me its shortcomings.  If someone wants/needs to move, they are going to move, contract be damned.  The only exception I could see would be with high-end A-class assets, where those tenants might have incentive to pay if they got a judgement against them.  But I can assure you that judgement will still be less than the total amount owed (at least in tenant-friendly jurisdictions).

Regarding turnover, portfolio-wide, my average tenancy is 23 months amongst those whom I have placed and have since vacated.  However, if I counted my current tenants the average would skew much higher; some have been with me for several years, and I have one that has been with me since the beginning on a MTM for 11 years).  I have C+ class, mostly 1BR units.  I am sure my vacancy is not any less than my market competitors offering term leases.  I can also assure you I have had less trips to eviction court (or small claims), as well.

Remember to ask yourself why would a tenant not want that flexibility of a MTM?  If you ever have anyone challenge you on that, I would ask them what their concern was?

I have been using this model since 2014, have placed dozens of tenants, and shown my units to over 600 prospects, and only a single candidate ever gave me any pushback on the month-to-month.  Needless to say, they were not offered the apartment (self-screening for the win).

Dan Marl · Answer

Hi Wesley, thank you for your thorough explanations.   I am having trouble finding qualified tenants and it's exhausting and discouraging.  If the lease is under 12 months, I dread going through this process again :)

But your MTM strategy does make sense.

Has anyone ever dealt with a shorter lease (less than 12 months)

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