Renew Lease or Month to Month?

Question

Hi guys / gals,

Just wondering from your landlording experience that when your tenant's lease is up (1 year), is it better to have them go month to month or have them sign a new one year contract?

My goal is to keep my tenants in place.  I kind of feel that when you ask them to sign another year contract, they would be force to start looking and comparing other properties to yours, but when you do a month to month, most people are too busy and end up put off house hunting.

Your thoughts?

Cheryl C. · Answer

I renew for a year.  I find most of my tenants prefer this.  Some even contact me when the lease is coming up - some want to lock the rent, but most don't want to worry about having to move.  I'd definitely go higher rent on a mos. to mos. renewal.  My longest is 12yrs and average is 4.  My  average would be higher, but I've purchased a number of properties over the past 3 yrs.

I understand the arguments for month to month; getting rid of a bad tenant, flexibilty to sell, etc.  I'd evict a bad tenant or not renew.  I can be a tough person in dealing with a bad tenant - luckily, it's doesn't happen often.  I target "lifer's" as turnover is a killer.  I tell my prospects that I am a long-term LL and have no intention of selling in the next 5 or 10 yrs (a truthful statement).

Steve Babiak · Answer

This just came up the other day in another thread:
http://www.biggerpockets.com/forums/52/topics/82008-extend-tenants-for-1-year-or-give-month-to-month-option

Bruce L. · Answer

Hi Sandy,

Do you have any long term renters renewing leases every year?
If so, what was the longest?

Paul Falbo · Answer

Judges might do the same here, but we have billed holdover and it does motivate.

Johann Jells · Answer

A NJ judge would throw that out as an "unconscionable rent increase".  It adds to the fun that "unconscionable" is undefined in the law and thus falls under the Potter Stevens rule, as in they know it when they see it. But it's said that over 10% and you may lose if the tenant challenges you.

Paul Falbo · Answer

Thanks guys.

We also use holdover provisions of 150-200 percent. A great motivator when they get invoices double their rent.

Sandy Blanton · Answer

We require a new lease two month's prior to expiration.  If they stay month to month, add a 10-20% fee onto their rent.  Either way you win:  you get 2 months to advertise for a new tenant and extra $ for the hassle of being in limbo.

IMO:)

Johann Jells · Answer

Paul, here in NJ the anti-eviction statute is such that you can't simply decline to renew a tenancy unless it's an owner-occupied 2-3 unit.  As you say the terms of the original lease are in force during the month to month. I have a 3 family where they're all M-M and the most recent tenant moved in 7 years ago.

Paul Falbo · Answer

From a commercial property manager's perspective, not licensed as an attorney, and not legal advice:

It depends on your state's Landlord/Tenant statutes, and the provisions of your lease.  In the absence of a signed document, I would think state statutes would rule.

You can amend the existing Lease with a simple document (amendment #1) to extend the term; and, add any negotiated modifications.  If you want to have the right to terminate the lease with a certain notice provision, you can include that in your amendment.

Usually, a month-to-month tenancy is covered in a good lease.  The tenant is usually bound by all the provisions of the lease.

It's been my experience that a month-to-month tenancy is a double edged sword.  If the landlord wants to cancel, he can do so with notice as provided for by statute or in the lease.  Just because notice is given, doesn't mean the tenant will move out.  Quasi-control, really.

If the tenant wishes to leave, then they can give notice, and move out.  This is especially tough in slow periods, or down markets.

There are many variables.  As the Landlord, I'd suggest you look at the market, absorption rates, rental rates, and quality of tenant, to help you make the decision.

I just had a month-to-month tenant that moved out because of health considerations.  He had been month-to-month for six (6) years!  Never late on rent.

Good luck.

Johann Jells · Answer

I expect lots of different answers, but we always let tenants go month to month after a 1 year lease. It makes little difference to us knowing a tenant "may" decide to leave on a specific date, rather than just getting a 30 day notice.  And we often get 60-90 day warnings.  Insisting on renewing leases seems like stress on a tenant with little to gain. But then, we don't have much trouble renting our units.

Renew Lease or Month to Month?

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