If you’re planning to move into a new apartment, chances are you might be considering whether to sign a short- or long-term lease.
What are the key benefits and downsides to consider when deciding whether to rent month-to-month or sign a year-long lease?
Month-to-Month Lease Benefits
Here are a few popular benefits renters receive when agreeing to fixed-term, or month-to-month, leases.
Robert Pinnegar, president and CEO of the National Apartment Association (NAA), said short-term lease agreements, including month-to-month, give renters greater flexibility. These leases afford renters the ability to relocate on short notice — usually within 30 days’ notice — and with fewer penalties. Renters who plan to move to different neighborhoods or switch jobs often may consider month-to-month leases to be their best options.
Control of Renewal Timing
A tenant who isn’t ready to sign or renew a fixed-term lease might prefer to agree to a month-to-month lease. Robert J. Fischer, owner and broker at The Robert J. Fischer Team, said a month-to-month lease generally renews on an automatic basis. It’s also simple for tenants and landlords to handle.
“As there is no set end date, tenants and landlords both can end the agreement whenever they want,” Fischer said.
Month-to-Month Lease Downsides
Before agreeing to a month-to-month lease, keep these potential drawbacks in mind.
If the landlord wants to change the terms in a month-to-month rent agreement, he or she is allowed to do it.
“The agreement is always changeable from the very beginning,” said Ben Fisher, owner of The Fisher Group. “This means the landlord can change the terms at their will, which includes increasing the rent price… The price of utilities can also be increased at the will of your landlord.”
A month-to-month lease is not always the cheapest rental option. Vicky Noufal, owner and associate broker at Platinum Group Real Estate, said the average monthly price of a two-bedroom rental is $1,542 to $1,877. Depending on where you live, the price may be even higher; within the last few months, there has been a 42% month-to-month price increase.
“Compared to a long-term lease, month-to-month rent is expensive as it follows the fixed-term lease,” Noufal said.
Long-Term Lease Benefits
Renters interested in signing a 12-month or longer lease may receive these benefits.
If you do not plan to move around or switch jobs frequently, a 12-month lease offers stability, Pinnegar said. Renters who sign year-long leases may better settle into their environments, build connections within their communities and plan ahead for the future.
Good for Budget Calculations
Rent is often referred to as a fixed expense in a budget. This means the amount stays the same each month. Pinnegar said 12-month or longer-term leases help with budget calculations. The rent remains the same throughout the entire leasing period and experiences smaller increases at the time of renewal.
Compared to month-to-month rent, the rental rates of long-term leases are lower. Fisher said a longer lease leads to a lower price for you.
Long-Term Lease Downsides
While there are fewer downsides to signing a long-term lease, here’s what renters should watch out for.
High Security Deposit
The security deposit for a long-term lease is generally much higher than for a month-to-month rental. While the money is returned to you if you do not renew the lease or want to move out legally, Fisher said some tenants find it difficult to make arrangements to have the necessary funds for the security deposit.
Penalties for Breaking the Lease
One of the tradeoffs for signing a 12-month lease over a month-to-month agreement is renters are legally obligated to honor the terms of their leases. Pinnegar said renters who break leases may be at risk of steep penalties.
Which Lease Option Is Best for You?
Both leasing options offer renters several benefits and potential downsides. The best way to determine which leasing option is right for you is to evaluate your needs both now and into the future.
If the near future means you’ll be moving around or changing jobs frequently, you might want to explore month-to-month rental options. This gives you flexibility and the opportunity to shift to another place without being locked into a formal agreement.
Those who know they will be staying in one location or holding down a certain job for the short- and long-term future may consider looking into long-term leases and options where they do not need to pack up and relocate often. This gives renters the chance to enjoy a bit of stability and plan ahead more effectively for the future.
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