Multi-Year Residential Leases

[Ed W.]

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.

[Kyle J.]

@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.