Before giving property on rent to a tenant, it is important that the landlord and the tenant enter into a lease. A lease is a contract between the owner of the property and the tenant. The lease transfers the rights of the owner to the exclusive possession and use of the property by the tenant for an established period. The lease sets the time till which the contract would be in existence and the amount of rent that is to be paid by the tenant to the landlord.
There are different types of lease agreements that exist such as the fixed-term lease agreement and the month to the monthly lease agreement. A month to the monthly lease agreement is created when the tenant is granted ownership of the property and pays the rent on a monthly basis, with no laid down the date of expiration of the contract. This type of tenancy is commonly found in residential leases.
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What is the meaning of month to month lease?
A month to month lease is a rental agreement that is executed between the landlord and the tenant for a period of one month, with recurrence. This agreement is automatically renewed each month for another month as long the payment of rent is continued until the agreement is terminated either by the landlord or the tenant. It is a short-term lease that allows either the tenant or the landlord to give notice before ending a lease contract. This type of lease does not have a specified end date within the contract and can go on for a long or short period of time depending on the interest of the tenant as well as the landlord.
Termination may happen by the tenant giving formal written notice to the landlord, as stipulated by the terms of the contract. The notice period for tenants while terminating the rental agreement has to be clearly mentioned in the contract at the time of taking the property on rent.
The termination of the tenancy can be initiated by the landlord also, where the landlord has to give a notice of termination to the tenants at least a certain number of days before the end of the rental month. The landlord cannot issue a notice with the expectation that the tenant will shift out the very next day.
Is month to month better than a fixed-term lease?
In the rental market, there exist two types of lease agreements – fixed-term lease agreement and month to month lease agreement. A month to the month lease agreement is not for a fixed term and can be said to be beneficial to landlords and tenants who are looking for flexibility. A month to month lease is a lease that implicitly continues each month until either party provides a notice for the termination of the lease. It is a common method of extending the lease of the tenant by the landlord.
The benefits of a month to month lease are as follows –
- There are tenants who are required to constantly move from one location to the other in lieu of their jobs, and it is seen that a month to month lease offers a great deal of flexibility as compared to the other option at hand.
- There are tenants who are looking for temporary accommodation after selling their homes. It helps tenants look for residential spaces without having to commit to a fixed lease agreement with the landlord.
- The landlord has the option of terminating the tenancy of those tenants that fail to conform to the rules and regulations of the rented property.
- In a month to month lease, the landlord has the option of hiking or dropping the rental value of the property. It is justifiable owing to the convenience and flexibility that is granted to the tenant.
- There is flexibility in the termination of the lease. Having no specific end date, the lease could technically continue indefinitely. The option of terminating the tenancy at any time is appreciated by most tenants, particularly those who are looking for job opportunities in other cities.
Should I sign a month to month lease?
Month to month lease agreements provide the tenant and the landlord with the opportunity of great flexibility in terms of the lease agreement.
Pros of the month to month lease –
The month to month lease agreement is conjunctive to a fixed-term agreement. The only difference between the two types of lease agreements is the amount of flexibility that is provided by the month to month lease agreement. The agreement automatically renews at the end of each month without the landlord and tenant have to do anything. The tenant can stay as long as he wants on the property with the agreement of the landlord, but he cannot be compelled to stay for a fixed period of time. If the tenant finds cheaper and affordable residential areas, he has the freedom to move out from the property after giving due notice to the landlord, as agreed upon in the contract.
Cons of the month to month lease –
The cons that are most relevant to the month to month lease agreement is the option of termination of the lease agreement. The landlord may give notice of termination of the lease and the tenant would have to abide by the conditions. There may be numerous reasons as to why the landlord would be seeking to end the rental agreement.
Another problem associated with such a lease agreement is that the landlord can hike the rent over the property in accordance with the ongoing market trends. However, it is to be noted that this is not a unilateral decision. The tenant would have to agree to the new agreement. If the tenant fails to do so, he would have to give notice regarding the termination of the lease.
Having discussed the pros and cons associated with a month to the monthly lease agreement, it is seen that the tenants should analyze their needs and situations before signing the lease agreement. The biggest advantage is the flexibility that such type of lease grants to the tenant with regard to the renewal of the lease. At the same time, there is a risk of termination of the lease agreement. However, in most cases, the benefits that are awarded by the month to month lease agreement outweigh the risks associated with it.
Can a landlord end month to month lease?
A month to month tenancy is a type of tenancy in which the tenant stays in the rental property for a period of one month, with the option of renewal. This agreement is automatically renewed each month for another month until the agreement is terminated upon giving notice either by the landlord or the tenant. It is a short-term lease that allows either the tenant or the landlord to give notice before ending the same.
A landlord must serve a two-month notice period to the tenant in order to end the tenancy. The tenant must receive the notice at least two months before the effective date of termination of tenancy and before the day the rent is due.
In order to avoid disputes, both the landlord and the tenant should be clear as to when the notice would be effective to the tenant, i.e., the date on which the tenant would have to move out and whether more rent has to be paid or not. Tenants must always be given the right amount of notice period before terminating the lease agreement. Even if there is an error in the dates, the correct amount of time must be given. It is noted that all notices to end tenancy have multiple pages – it’s only valid if the tenant is served with all the pages. There are rules about how and when a landlord can serve notice.
How to calculate income from house property?
All kinds of properties are taxed under the head of ‘income from house property’. The Income Tax Act does not differentiate between commercial and residential property. An owner of the property is considered as the legal owner of the property for the purpose of payment of income tax. If the property contitutes an integral part of a person’s business or profession, then the income received from it is taxed under the head of ‘income from business and profession’. The expenses that are involved in the repair and maintenance of the property fall under the head of ‘business expenditures’.
- Determine Gross Annual Value (GAV) of the property: The gross annual value of a self-occupied house is zero. For a property that is let out, it is the rent collected.
- Reduce Property Tax: Property tax, when paid, is allowed as a deduction from the GAV of property.
- Determine Net Annual Value (NAV): Net Annual Value = Gross Annual Value – Property Tax
- Reduce 30% of NAV towards standard deduction: 30% on NAV is allowed as a deduction from the NAV under Section 24 of the Income Tax Act. No other expenses such as painting and repairs can be claimed as tax relief beyond the 30% cap under this section.
- Reduce home loan interest: Deduction under Section 24 is also available for interest paid during the year on the housing loan availed.
- Determine Income from house property: The resulting value is your income from house property. This is taxed at the slab rate applicable to you.
- Loss from house property: When you own a self-occupied house, since its GAV is Nil, claiming the deduction on home loan interest will result in a loss from house property. This loss can be adjusted against income from other heads.
- When a property is let out, its gross annual value is the rental value of the property. The rental value must be higher than or equal to the reasonable rent of the property determined by the municipality.
It is seen that there are several pros and cons associated with month to month lease agreements. The pros include the flexibility that is awarded to the tenant. The lease agreement renews itself on a monthly basis, and the rent is paid by the tenant on the same. Since it is not a lease for a fixed period of time, the tenant can terminate the agreement and vacate the premises after giving due notice to the landlord.
The property can be used as temporary residential premises until the tenant finds other accommodation. A con of the same however is that, since the agreement is on a month to month basis and does not have a fixed period of time till when the tenancy is to exist, the landlord can terminate the agreement by giving notice to the tenant.