LAURENE H. YOUNG, RMP, REALTOR
Lui & Young Realty, Inc.
2011 President, Oahu Chapter
National Association of Residential Property Managers
Q. What are the pros and cons of a fixed vs. month-to-month rental agreement? Does the rental agreement need to be in writing?
A. In deciding whether to sign a fixed or a month-to-month rental agreement (lease), both parties need to consider what is most important to them. Here are some pros and cons of both.
Pros of fixed lease: A fixed lease gives the landlord assurance that they have rent coming in for at least that period of time. It gives the tenant assurance that the rent will not increase and that they will not have to move for the term of the lease. Even if the home is sold, the new owner would have to abide by the terms of the existing lease. (Note: Section 8 Housing Assistance usually requires a one year lease.)
Cons of fixed lease: If the tenant leaves before the end of a fixed lease, they are in breach of the contract and may be liable for the term of the contract, subject to some limitations. However, they can leave at the end of the fixed lease without notice. Landlords usually request notice anyway, and most tenants will provide it, but occasionally the landlord may not know that the tenant had planned on leaving until he gets that call saying they have moved. It is a good idea that, at least a month prior to the end of the lease, both parties discuss their plans. If a tenant continues to occupy the unit after the end of the fixed lease, and the landlord agrees, a month-to-month tenancy is created, or a new fixed lease can be negotiated. If the landlord expected the tenant to move and does not want the tenant to continue occupying the unit, a holdover tenancy is created. As a holdover tenant, the tenant may be liable to the landlord for not more than twice the monthly rent under the previous agreement. If the landlord does not sue to evict the tenant during the first 60 days of the holdover and no new rental agreement is signed, a month-to-month tenancy at the monthly rent under the previous agreement is created. In a fixed lease, the landlord can only raise the rent upon the expiration of the lease. They cannot end the tenancy early, except for cause and usually with an eviction proceeding.
Pros of month-to-month lease: A month-to-month lease is better for the landlord who is unsure about the tenant and wants added flexibility to evict a less than perfect tenant. If the tenant turns out to be noisy, breaks the house rules numerous times, or is inconsistent in paying the rent on time, the landlord can end the lease sooner than with a fixed lease. If the tenant turns out to be a good tenant, the lease can then be converted to a fixed lease. Some tenants prefer a month-to-month tenancy because of a job situation, house sale, or other circumstance.
Cons of month-to-month lease: Some landlords will charge a higher rent for this type of lease. In a month-to-month tenancy, the landlord may raise the rent at any time after giving the tenant a 45-day notice. (In a week-to-week tenancy, the landlord must give 15-days notice of a rent increase.) Some tenants may want a month-to-month tenancy, but with some assurance that the rent will not increase for a fixed period of time. This is a provision that can be written into the agreement. In a month-to-month tenancy, the tenant may end the lease at any time after giving the landlord a 28-day notice. This may cause cash flow problems for some landlords.
Rental agreements may be either in written or oral form. A written agreement may be for any length of time. It may be a week-to-week, month-to-month, one year or any other term agreed to by the parties. Oral agreements are less common and are normally month-to-month (or week-to-week in the case of boarders) and may not exceed one year in duration. However, oral agreements are typically difficult to enforce when there are differences in what each party remembers about the agreement. Whatever lease term is agreed to, it is better for both parties to have a written agreement.
Answers to questions in Landlord Tenant Q&A are provided by members of the Oahu Chapter of the National Association of Residential Property Managers (NARPM), an organization that supports the professional and ethical practices of rental home management through networking, education, and certification. The Oahu Chapter, founded in 2004, has become the largest in the nation with 175 registered members.