Short-Term Tenancies
Depending upon local rental market conditions, the landlord’s rental policies, and the desirability of rental units being offered, short-term leases may be good business for some independent landlords. Short-term leases, typically a term less than six months, may be particularly beneficial in markets where the supply of rental housing is limited but the demand for housing is high. With a larger renter pool and/or rising rents, some landlords are more willing to accept the perceived risks of short-term tenants. In some circumstances, such as an anticipated future sale of the rental property, a landlord may want more flexibility to negotiate contract terms with a buyer and choose to only market to short-term tenants. In a slow market and faced with unexpected vacancies, a landlord may opt to utilize short-term leases as a means to more quickly bring in rental income.
In many markets there is an underserved need for short-term rental housing. Offering viable options to renters who are actively searching for rental housing on a shorter term basis than most commonly offered longer length terms can present a landlord with an opportunity to strengthen his market position. The landlord’s challenge is to weigh market opportunity in regard to renter demographics, local market conditions, business need, and the willingness and ability to tolerate business risk.
Rental Term Length
Most commonly a short-term lease is a month-to-month rental. The term of a lease is set by the landlord and can be variable in length to accommodate business need. The lease for a specified term as agreed to by landlord and tenant is a legal contract and requires obligations and duties of each party under the contract.
Benefits of Short-term Leases
Flexibility
The most frequently mentioned advantages of a short-term lease are flexibility and control. Both landlord and tenant can enjoy the flexibility and control that such an agreement offers.
A landlord has the flexibility to set his rents at a higher than market rent to compensate for a perceived higher risk of vacancy in the near future. For a month-to-month lease, the flexibility of the lease allows a landlord to quickly adjust to market conditions, notably if rents are rising, the landlord does not have to wait until the end of a tenant’s fixed-term lease to increase his rents. In many states the landlord can notify a tenant of an upcoming rent increase with only 30 days’ notice. Terms and conditions of the lease agreement can also be changed for business necessity (subject to any restrictions of local rent control ordinances) as long as the required notice is given to the tenant.
Tenants who seek short-term leases do so for a reason and the ability of a landlord to provide rentals of this nature can often attract rental prospects to the landlord’s properties. A potential renter may want the benefit of a short-term rental for purposes such as job assignment, family considerations, being new to the area and wanting to become familiar with local housing options, actively looking to purchase a home in the near future, new home construction, completion of major renovations to existing residence, seasonal work, changes in financial situation, or for many other and varied reasons. A tenant with possible changes in his future living arrangements may feel that a month-to-month lease offers a greater benefit to him by the fact the tenant will not have to break a long fixed-term lease when his circumstances change and the tenant must move on.
Control
A landlord has more immediate control of his property if a short-term lease tenant fails to comply with rental terms and conditions. A landlord can initiate termination of a month-to-month tenancy by giving the required legal notice to end an unsatisfactory landlord-tenant relationship before it becomes a more costly legal action for eviction. The eviction process through the court system for a material violation of a fixed-term lease condition can take months. Control of the situation and the return of possession of the rental unit can usually be accomplished within a shorter time if the tenant has a month-to-month lease agreement.
A tenant with the flexibility of a short-term lease has more immediate control of his housing needs and, as needed, can make a change in his housing status in a relatively short period of time.
Drawbacks to Short-term Leases
Increased Tenant Turnover
Obviously with short-term leases, there are more frequent tenant turnovers, resulting in more costs for cleaning and otherwise restoring units to move-in condition.
Many times, a landlord will hesitate to offer a month-to-month lease because of continual tenant turnover. However a landlord has no guarantee against tenant turnover even with a longer fixed term lease. While a landlord can terminate a short-term lease on fairly short notice according to statute requirements and lease terms and conditions, the tenant is also free to terminate his tenancy with proper notice. The rental unit could be turned over several times a year. A landlord will need to be prepared to handle vacancies quickly and efficiently once notice by either party is given to terminate the tenancy. The amount of preparation needed to restore the unit to good condition will of course be dependent upon the circumstances.
Potential Risk of Property Damage
Some landlords believe that a tenant with a fixed-term lease agreement will take better care of a rental unit than would a tenant with a short-term lease. However, if the landlord always conducts adequate tenant screenings, selects a qualified tenant each time to fill a vacancy, and utilizes adequate check-in/check-out documentation – no matter what the period of the lease term – the landlord will be better prepared to help protect his property from damage and his current tenants from risks.
With more frequent tenant turnover, there may be more wear and tear on the rental unit. Normal wear and tear on the property will still need to be attended to through repair or replacement. However, this is usually more determined by the quality of tenants selected by the landlord, whether staying for a month or multiple years.
Potential Negative Impact of Frequent Moves by a Tenant
A short-term rental offers a tenant flexibility and freedom in choosing his rental housing. If the tenant is a serial mover, changing rental addresses frequently in relatively short periods of time, the frequent moves may have a negative impact on the tenant’s rental history when a new landlord conducts due diligence screening. Most landlords will screen applicants for stable and long-term tenancy. The tenant, in choosing to move frequently, may appear to be a risk to the new landlord.
Lease Terms and Conditions
Whether the rental contract is called a lease agreement or a rental agreement matters not. What matters is whether the contract adequately protects the landlord’s investment and doesn’t violate the tenant’s legal rights. The rental agreement or lease agreement between landlord and tenant is a legal contract setting out landlord and tenant responsibilities and obligations in the same manner lease agreement for a fixed-term. The landlord is obligated to offer and maintain housing in a safe and sanitary condition under the implied warranty of habitability and to protect the tenant’s rights to quiet enjoyment of the rental premises. The tenant is responsible to keep the rental unit in good condition and to pay rent as set out in the agreement terms and conditions. The tenant is obligated to the landlord for only the period of time as specified and mutually agreed to in the lease.
Considerations for Short-term Lease Offerings
An important issue for landlord is to make sure they understand the state’s landlord-tenant statutes regarding leases, particularly notice requirements to change or terminate a month-to-month tenancy. While some states do not have a state statute on the amount of notice required to change rent or other terms, in general the amount of notice that a landlord must give to increase rent or change another term of the lease in a month-to-month tenancy is the same as that required to terminate a month-to-month tenancy. If the rental unit is governed by state or local rent control laws, there may be different notice requirements.
The amount of notice may also depend upon which party, landlord or tenant, gives notice to end the tenancy. There may be different notice requirements if the tenant has violated terms of the rental agreement; e.g., fail to pay rent. All such matters must be covered by the lease or rental contract.