Fixed-Term Lease vs. Month-to-Month Rental Agreement

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When renting an apartment, you can expect two basic types of rental arrangements with a landlord: a fixed-term lease and a month-to-month agreement. Here's a rundown of the pros and cons of each arrangement so you can decide which one is the best option.

Fixed-Term Lease

The most common rental arrangement is a fixed-term lease. The lease states the duration of the tenancy, and when the time is up, you have to renew your lease to stay in the apartment, if that option is available. Most leases are for one year, but two-year terms are not uncommon. Other arrangements are also possible. For example, if the apartment was vacant for several months before you moved in, the landlord might ask you to sign a lease for, say, 15 months instead of the usual 12 months, so that the lease's termination date gets in line with the other tenants' leases. An extended lease also could be for more than just organizational purposes; for example, your landlord might want the lease to expire during a peak apartment-hunting period, such as during the summer.

Month-to-Month Rental Agreement 

A month-to-month rental agreement might appear to be a very short version of a fixed-term lease, lasting just one month. But there's a key difference: month-to-month agreements automatically renew if neither you nor your landlord give notice of vacating within a specified time period. For example, if you plan to move out at the end of October, you may need to notify the landlord before the end of September.

The main advantage of a month-to-month rental arrangement is flexibility. You don't have to worry about breaking a lease in the middle of a one-year or two-year term, which could be costly. Instead, you can end a month-to-month lease any month you wish by giving the landlord sufficient notice (usually 30 days). Of course, the landlord has the same flexibility. As the renter, you live with the risk of getting a notice of nonrenewal at any time, at which point you would have just 30 days (or a little more, if the landlord gives the notice in the middle of a month) to find a new home.

Security vs. Flexibility

Deciding between a fixed-term and month-to-month lease comes down to this simple question: Do you need the security of not having to move for at least a year, or would you benefit most from a flexible arrangement even though it could change on short notice? The flexibility of renting month to month comes with an equal amount of risk. Therefore, it's a good idea to be realistic about how willing (and able) you would be to move out and find another apartment any month of the year. On the other hand, if there's a good chance that you may have to move in less than a year, a month-to-month agreement may be well worth the risk.

Some landlords are willing to offer a third option of starting with a fixed-term (usually one year) lease and switching to a month-to-month agreement after the lease has expired. For many renters, this is an attractive compromise; they get the security of a year lease and can stay in the apartment after the year is up without having to sign another fixed-term lease.