Tenant looking to move to month-to-month... Considerations?

[Brandon Palmer]

Hi BP friends!

We have a family (2 parents + 1 kid) who are renting from one of our SFRs.  Their lease is currently expected to end in mid-May but they are also building a house (we knew this coming into the lease) which they are expecting to move into in October / November.

They have asked that when their lease ends to move to M2M and we're trying to decide how best to respond.

• - They are paying a bit below what we think the market rate would be (we are/were expecting to raise rents ~ %8 when they left)
• - Them leaving in the fall makes the property harder to rent
• - They have been perfect tenants with great credit / etc. Zero complaints about them

Options as I see it:

1. a) We could ask them to sign a one year lease at market rate (that feels super unfair)
2. b) We could allow them to keep paying at their current rate and allow the month-to-month
3. c) We could ask then to sign a lease until a safe / known date (maybe December 1?) and charge them market rate.  We then carry the risk of the December rental which feels high-risk
4. d) We could charge them market rate + 1mo vacancy risk amortized over 6mo (that would look like a considerable rent raise for them but I think the tenants could handle it)
5. e) Something else I've not yet thought of...

Any thoughts / ideas? What seems the most fair?

Thanks everyone!

[Nathan Gesner]

This happens all the time. Tenants want you to deviate from your policy for their convenience with no expectation of compensating you for the additional risk. You need to develop a win-win situation.

If they stay month to month and leave in the dead of winter, it may be difficult for you to find replacement tenants and it may be difficult to get mark at rate like you could in the summer.

when I have situations like this, I allow the tenant to continue on a month to month with a significant increase of 20 to 25%. If the rent is already 8% below market, a 20% increase would only be a 12% increase over market. That's a pretty fair deal for them and the additional income would help reduce your risk of loss should have vacancy occur in the winter time.

Another option is to sign them for another one year lease, as you had planned to do. Give them the option of terminating the lease early with 30 days notice, and a termination fee equal to one month's rent payable on the day they give notice. Again, this mitigates the risk of loss during a turnover in the middle of winter or any other time of year.