Lease v. Tenancy at Will

The most common question I get from landlords is which is better: a lease or a tenancy at will (TAW).  To answer this question we must first understand the difference.   A leased tenancy is for fixed term.  It can be any fixed term, but the most common in residential real estate is a one year lease payable in 12 monthly installments.  A tenancy at will is a month to month tenancy with no fixed term.   Leases have to be in writing.  Tenancies at will can either be in writing or produced orally.  Also, after the term of lease expires, if the tenant remains and continues to pay rent monthly and the landlord accepts the rent then the tenancy automatically becomes a tenancy at will.

Regardless of which you choose, it should ALWAYS be in writing.  That is true whether you are a landlord or a tenant.  Having all the terms of the tenancy written out and acknowledged by both parties will make for a smoother tenancy for all involved.

Now that you know the difference, the question is: which is better?  The answer is not the same for everyone.  So, let’s examine some of the rules that are applicable to each and then you can apply those to your situation to decide which you would prefer.

Termination.  When it comes to a non-payment of rent situation the same notice is required under both the lease and TAW.  You have to give minimum of 14 days’ notice to terminate a tenancy if it is for non-payment of rent.  However, when it comes to an eviction for fault there is a dramatic difference between the two.  In a lease you can dictate as little as 7 days’ notice to terminate a tenancy based on a violation of the tenancy agreement.  If you have TAW then you have to give 30 days or a full rental period, whichever is longer to terminate due to fault.  In practicality this is how that works:  Assume you have a written tenancy a will at one property and a written lease at another that dictates the rules of the tenancy.  You find on out June 3rd that the tenant is violating one of the provisions of the tenancy agreement and it is bad enough that you want to terminate the tenancy.  Under the lease, you can terminate the tenancy upon 7 days’ notice therefore your termination would be effective June 11, 2012 assuming you gave notice on June 3rd.  Under the TAW you would have to give 30 days’ notice plus the rental period, therefore the termination date would be August 1, 2012: a difference of almost 49 days.  49 days is a long time to wait when dealing with an active violation of your tenancy agreement.

Cure rights.  Cure rights are the amount of time a tenant has to pay what is due after they have fallen behind.   If the rent is due on the first of the month and the tenant doesn’t pay, you can terminate either the lease or TAW by 14 days’ notice.  Under a TAW the tenant has the right pay what is due in order to stop the termination.  However, the tenant can only cure once in a 12 month period.  Therefore, if the tenant pays late on June 1st and you serve a 14 day notice and then the tenant pays everything due then the tenancy is reinstated.  However, if the tenant then pays late for July and you terminate by 14 days’ notice and then the tenant tries to pay, it is up to the landlord as to whether he or she wants to accept that cure payment and reinstate the tenancy.   Under a lease, unless the lease provides otherwise, the tenant can always cure.   So, the tenant could pay late every month and after notice, he could cure and reinstate the tenancy.  This could be quite burdensome for the landlord.  One easy fix to prevent this is to put a provision in the lease that states that 3 or more late payments in any calendar year shall be a material violation of this lease.

Locked in. As you now know, leases are for fixed terms and TAW are month to month.  Therefore, if you have a lease and the tenant wishes to vacate before the end of the term, he or she will remain liable for the balance of the rent for the remainder of the term.  There are requirements that need to be met by the landlord prior to being able to collect the balance of  the rent, but assuming everything is met, this is a good security blanket for a landlord.  As there is no term with a TAW, the tenant can terminate upon 30 days’ notice and then the landlord is stuck trying to fill the vacancy.

No fault. So far, most of what is outlined above makes leases the preferred choice of landlords; however this last consideration is an invaluable one in support of a TAW.  I call it the “jerk” factor.  Assume you have a three family and you live on the first floor and you are renting out the second and third floor to two different families.  You have a one year lease with the 2nd floor tenants and a TAW with the third floor tenants.  Because you live at the property you have numerous interactions with each tenant.  You see them each day coming and going from work. You sometimes are in the common areas of the property and you have interactions with each of them.  Over time you come to find that one of the tenants is just not a good person.  They are rude and obnoxious and you feel uncomfortable every time you are around them.  Nothing they do rises to the level of a violation of a provision of your tenancy, but the bottom line is that you just simple don’t like them and don’t want them around your property where you and your family live.  You are stuck with the lease tenants because it is a fixed term and since they haven’t actually done anything in violation of the lease, you cannot terminate their tenancy for “no fault”.  However the TAW can be terminated for “no fault”.  Meaning you can just give them 30 days’ notice and then regain possession.  The times that I will recommend a TAW almost always involve an owner occupied multifamily and it is for this reason.

This has given you a very brief outline of some of the main benefits and detriments to a lease or TAW.  There are numerous other factors that should be taken into consideration.  Please feel free to reach out to Attorney Ken Vining and he will evaluate your personal situation and discuss in detail all the pros and cons of the lease and TAW and come up with what best suits your needs.