Multi-Year Residential Leases

8 Replies

I'm a pretty experienced landlord in Ohio.  Based on Ohio law, I've never found any reason to have a lease term longer than a year.  My typical arrangements are either a 1 year term that becomes a month-to-month lease at the end of the initial term or a month-to-month lease from the very start.  These arrangements have worked well for me and I have relatively low turnover.

A friend in Missouri who has been a tenant in a single family property for a number of years without lateness paying rent or other incident, is telling me that their landlord is requiring a new lease for a minimum term of 5 years.  For the life of me, I don't understand how that helps a landlord.  Even if the market for rental housing is tight and tenants are lining up outside the landlord's units begging to move in - at least in Ohio - if a tenant has to break a lease the landlord is likely to get only the security deposit (though they are often entitled to more) and the landlord has an affirmative obligation to mitigate the damages by making a good faith effort to lease the unit.  In our current market, most units would be leased within 30 days so the landlord would only get the security deposit and not be able to sue for the rents based on whatever number of months and years remain on the lease.  In a slow market the landlord might have the right to collect months of rent but the cost of successfully suing and collecting usually is not worth the effort.

Other than some value in psychologically tying some limited number of tenants to the rental unit, what, if anything, is the value of a multi-year lease?  Is there something peculiar to Missouri law that makes this truly (vs. marginally) advantageous to landlords?  In a market where there are more housing units available than tenants who want them, multi-year leases - on average - would probably move slower than those with 1 year leases. 

Your thoughts on this are appreciated.

I don't have any answers and am curious myself. Please ask your friend to ask the landlord the reasons for requiring such a long lease term and let us know.

@Ed W. I’m with you on this. I only do a one year lease initially and then I let it go month-to-month. 

I feel longer leases really only benefit the tenant because I’ve found that tenants generally leave whenever they want when it comes right down to it. And, as you pointed out, in almost every state landlords have an obligation to mitigate their losses and re-rent the property. So the longer leases really just end up locking the landlord in. 

I like the flexibility of the one year lease followed by the month-to-month so I can raise the rent whenever I want after that first year. Plus, if things aren’t working out with the tenant, neither one of us is stuck with each other. Though most of my tenants have been with me for 5-6+ years. So I must be doing something right. 

 I don’t know why a landlord would do this either. I’m not sure what your state law allows but unless there’s some specific provision written into a lease of that length providing for rent increases it would probably actually limit the landlord’s ability to make an annual (or other periodic) rent increase.  It seems to me like the disadvantages to both the tenant and landlord are outweighed by any advantages that long of a lease term may provide. 

Thanks to all of you.  I was actually hoping to get a dissenting opinion on the assumption that I was overlooking something but it appears that we all think alike - and are likely correct in our thinking.  

I'm wondering if they are expecting a market downturn and want to make sure the rent terms/rates are locked in for a long time. That's the only thing that came to my mind. Have they asked the landlord why?

@Jennifer Rysdam   Thank you for your thoughts. 

I'm going to talk to my friend over the weekend.  My suspicion is that the landlord isn't so sophisticated that they are factoring in what they believe might happen to the market, but I've been wrong before.   

It's not cast in stone but we're leaning towards a letter that outlines the good, long-term tenant he has been, perhaps throw in some things about tenants not truly being bound to 5 year leases (I'm not so sure that saying this is the best strategy) and request an exception.  The fact of the matter is that the landlord cannot replace this guy with a better tenant.  The best he can hope for as tenant who is as good who, initially at least, is fine with a 5-year lease.  Whether the tenant truly stays for 5 years remains to be seen.

I'm not sure what your state law allows, but unless there are specific provisions in this length of lease to provide for rent increases, it may actually limit the landlord's ability to increase rents annually.

In my opinion, the shortcomings of both tenants and landlords are offset by any benefits that may be offered over the long term of the lease.