Short Term Vs. Long Term Leases – What The Property Owner Should Know

A short term lease could be on a month-to-month basis, for 3 months or any period up to 6 months. Anything longer than that is normally not considered a short term lease. Landlords are more prone to offering short term leases in localities where the demand for space exceeds availability. This ensures that landlords have a large pool of potential renters to choose from when the short term lease is over. This increases the chances of maintaining occupancy of the premises and continuity of rental income. In addition, landlords are more willing to agree to short term leases when rents are on the rise as this will enable them to increase the rent with each new lease. On the other hand, when rents are declining or stagnant, landlords prefer long term leases for the security of rental income they get.

As a property owner it is important that you are aware of the pros and cons of short term leases so that you are aware of what you are getting into if you agree to one.

The Cons

When a renter asks for a short term lease, the reasons may be those that are not in conflict with the landlord’s interests. But it could also be because the short lease duration is necessitated by issues that landlord is not aware of. It is important to understand why a prospective tenant wants a short term lease. Among the things to be aware of are:

• Is the tenant unwilling to commit to a long lease because of job insecurity or other financial issues that could make default on his part more likely?
• Can you be sure of being able to find another tenant when the current one leaves in a few months? Keep in mind the way the real estate market has been moving over the last few years. A shortage of space today that is to your advantage could turn into a surplus in a few weeks, and the next tenant could pay you less than the current one.
• Do you have the time and / or inclination to look for a new tenant every few months? The time consumed in the process can eat into other essential activities.
• No matter how good the tenants are, they will leave some signs of their occupancy behind when they leave. Before renting out the space again this will have to be fixed.

Do you have the energy and time to repeat the process every few months? Vacancies cost money, period.

The Pros

• Short term lease rentals are higher than those of long term rentals for similar properties so your income rises.
• Since each lease renewal will be normally accompanied by an increase in rent, any extension of the lease by the tenant will be to your monetary advantage.
• When a new lease is signed, if the market conditions permit, you could expect a significantly higher rent than with the previous lease.
• In the case of a long term lease you, as the landlord, are locked into a set of lease terms and conditions for an extended period of time. With short term leases you can change the terms to suit your changing needs with each new lease.

Which Is Better?

A call on whether to agree to a short term lease or not will depend on the individual circumstances of different property owners. But by and large, a long term lease will provide for greater security of income, less hassle in terms of finding new tenants frequently and getting the property done up. And, in general, a long term tenant is one who will care for the property more as he will be staying there for an extended period of time.