The pros and cons of signing monthly versus yearly leases

When it comes to leasing options, you don’t have to limit yourself to a 12-month rental agreement, especially if you desire some flexibility as a renter. Instead, you could opt for a shorterterm lease that allows you to rent from month to month.

“Monthly leases are becoming more of an option due to the continued strong seller’s market,” comments Gene Darden, a real estate agent and investor in Helena, Alabama. “With housing inventory being low and lack of availability, you have numerous homeowners in between purchases. Landlords are increasingly realizing they can get quality tenants and more money by offering the convenience of short-term rental agreements.”

From the point of view of the landlord and tenant alike, receiving and paying monthly rent can be a win-win.

“This way, landlords are allowed the convenience to react and respond to constantly changing market conditions. So, for instance, in a geographical location where rates of rent fluctuate a lot, monthly rent payments can benefit a landlord, as they can negotiate the changes each month. They can also compare their rent with that of their competitors and react accordingly,” explains Kyle Kroeger, a finance expert and investor.

Monthly leases are just the ticket for renters who require the option to move out whenever they would like.

“An ideal candidate for a monthly lease is a person in the process of purchasing a home since, after closing, they can avoid holding costs on two properties,” says Earl White, founder of a real estate-focused law firm in New Jersey. “Other good prospects include those planning a move shortly or who anticipate relocation due to work.”

Jonas Bordo, CEO/ co-founder of Dwellsy, the largest U.S. rental listing platform based in Los Altos, notes that with a yearly lease, you sign a rental agreement for a 12-month term, give or take a month.

“During that period, the arrangement is fixed: The rent stays consistent for the duration of the lease, and the renter has the right to stay in the unit until the lease expires,” he says.

With a monthly lease, you continually renew your rental agreement from month to month.

“Here, the renter gains flexibility by being able to depart, giving as little as 30 days’ notice to the landlord at any time. And the landlord can make changes to the rental terms, including raising the rent or asking the renter to leave the apartment with just 30 days’ notice,” Bordo cautions.

The availability of short-term rentals will vary widely based on geographic location.

“I spoke to a landlord in Charlottesville, Virginia, recently, and she mentioned that it’s common for renters in her area to be able to sign a lease that’s month-to-month from the very start. But in cities like New York or San Francisco, monthly leases are rare. In a town like Chicago, it’s common for renters to stay on a month-to-month lease after the expiration of a 12-month lease,” Bordo continues.

It’s possible to switch from a yearly lease to a monthly lease or vice versa if you request it and the landlord is willing to negotiate with you.

“Leases are a contract, and as such the terms of the contract are controlled. Changing from yearly to monthly would need to be done with the consent of both parties or as permitted under the lease,” White explains. “If the lease term comes to an end and one party has the right to terminate, that party would have the right to set new terms or end the tenancy if new terms are not in agreement.”

It’s most typical to make this transition at the end of the initial lease term.

“If you request it beforehand, your landlord may assume you are trying to move out early and may request that you pay a lease-break fee,” Bordo adds.

Be prepared that your landlord may say no to a monthly lease, however. That’s because many landlords like the peace of mind that comes knowing they have a steady source of passive income they can count on for at least 12 months.

“This allows them to plan and stay consistent with their financial goals. It also helps them avoid the hassle of having to find and screen new tenants,” Kroeger says.