Pros and Cons of Short-Term Leases

Factors to consider when offering or shopping for a short-term lease.

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Pros and Cons of Short-Term Leases

Posted by Nick Chandley-OP MGR on Friday, February 17th, 2017 at 3:25pm.

Most single family, townhome, and individual condo units are offered to lease for one year or more.  The landlords who own them are frequently small investors who rent a single property or no more than a handful of units.  Annual leases offer a measure of predictability and landlords can budget based on projected rental income over a longer term.  Tenants with longer leases have the security of a fixed term and rent amount plus assurance the lease must be honored even if the landlord’s situation changes. 

There are however circumstances when short-term leases might be attractive.  In weighing which strategy is best for you, consider the advantages and drawbacks to short term leasing:

Pros:

•    Flexibility – Landlords who want to sell their rental property or occupy it for their own use may find shorter terms attractive.  Month to month leases can require as little as 30 days of notice to terminate.  Tenants who desire monthly or short-term leases are frequently looking to purchase a home or have a special circumstance that makes a 1+ year commitment unattractive.

•    Lease break charges – The tenant benefits here in avoiding the expense of penalties associated with breaking a lease if a shorter term can be negotiated up front.  Shorter leases usually require 30-60 days of notice so the tenant can terminate with relatively short notice without negative consequences.

•    Modification – An annual lease binds the parties to the terms and conditions for the entire duration of the contract.  Shorter-term leases offer more opportunity to change the deal.  This most frequently comes into play with rent adjustments.  Longer terms lock in the rent and provide price stability for the tenant.  Shorter terms allow the landlord to make adjustments to the terms or rent amount with adequate notice.

Cons:

•    Cost – Tenants who request a monthly lease can expect to pay more than those willing to commit for a longer term.  Flexibility comes with a cost.  For the landlord who otherwise would not approve shortened terms, increased cash flow may be the only incentive.  Expect to pay more for monthly leases when you can get them.

•    Volatility – Short-term leases are a double-edged sword.  Either party can terminate the contract with relatively short notice, potentially leaving the other in a pinch.  A tenant runs the risk of being forced out of the rental property and scrambling to find another.  A landlord’s rental income suddenly dries up until they can replace the tenant.

•    Scarcity – Short-term leases are relatively hard to find.  Locating suitable property can be challenging for tenants.

•    Turnover – Landlords who offer short term leases may incur more maintenance costs since the property can turnover more frequently than it otherwise would.  Well-qualified tenants can be hard to find, so the risk of extended vacancy is always a possibility. 

Generally short term leasing works best when there is high demand and low supply, ensuring properties will not sit empty for long periods between tenants.  It also works well for landlords when rents are being driven higher by market conditions.  It is typically easier to secure a short-term lease in winter since landlords may want to adjust turnover of the property to occur in spring/summer rather than continue with a winter rollover.

Everything is negotiable and it never hurts to ask if lease terms are flexible.  It helps to understand the benefits and potential consequences of renting for shorter periods.  Always feel free to consult your TREG property managers with questions on leasing and availability of properties with shorter terms.

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