Monday, October 24, 2016

Real Estate & Related Terms Explained: Month to Month

In your business travels, you may have come across a Tenant or Landlord that is leasing a space month to month. But do you know exactly what that means and what the ramifications are for both parties? Today we are going to explain month to month tenancies.

On a side note: Our discussion will be in regards to commercial leasing month to month. Residential month to month tenancies is another topic and can get very technical depending on your jurisdiction (ours being Ontario). Read up on your residential Landlord-Tenant laws to learn more about residential month to month tenancies.

What Exactly is a Month to Month Tenancy?
A month to month tenancy is technically a lease arrangement that is terminable by either party on 30 days notice (hence the term month to month). This terminable aspect of the lease goes both ways, for both the Tenant and the Landlord.

Why Would I Find Myself In A Month to Month Tenancy?
You could have entered into a month to month tenancy at the beginning of a lease, either as a Landlord or Tenant, by agreeing to not have a lease term (ie. 1 year) attached to your tenancy. The other way you could be involved in a month to month tenancy, is when the Tenant’s lease term is up and is either out of options to extend, or has decided to not exercise their right to extend, and is therefore holding over on their lease month to month.

What Are the Pros to a Month to Month Lease?
The pros of a month to month tenancy as a Tenant are obviously that should things turn sour in your business, you could close down in 30 days and not be on the hook for a long lease term. Or, if you are a tenant looking for a better location or space for your business, holding over month to month allows you to continue to operate while searching out new premises. The pros for the Landlord would be that it creates flexibility should a long tenant user come along to take the existing tenants space, or if you had a multi-unit building and needed to accommodate a larger user tenant.

What Are The Cons to a Month to Month Lease?
Obviously the con to a month to month tenancy is a lack of security both ways. As a Tenant if you are holding over month to month, the Landlord could at any time lease the space to someone else with 30 days notice. Likewise for the Landlord you could have any empty unit with only 30 days notice to prepare. Also as a Landlord, month to month tenancies will make it harder to finance and sell for proper value.

As always your lease agreement will have clauses in it relating to this topic. Make sure you understand those clauses and how they relate to your situation. If you have a question about your month to month tenancy, feel free to drop us a line!

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