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To Lease or Not to Lease…

By Tia Politi, General Manager at Acorn Property Management

As a rental owner, one of the most basic of considerations is whether to offer your property for rent on a fixed-term lease (FTL) or month-to month (MTM) basis. Many landlords have a strong preference one way or the other; others are open to letting the tenant decide. Whichever choice you make, there are benefits and drawbacks that you should be aware of.

A MTM agreement offers more flexibility for tenants and landlords alike. There is no defined minimum period of time that a tenant must fulfill, which can result in a shorter-term tenancy than you may prefer, the only tenant obligation being a 30-day written notice to vacate. (Notice to vacate from one party to the other may happen at any time during a month and is not restricted to a full rental period as some owners and tenants believe. In the case of Section 8 tenancies, notices from owners to tenants must be for a full rental period, but the reverse is not the case. Section 8 tenants may terminate their agreement with their landlord once it becomes MTM at any time during a rental period.) Certainly, the biggest drawback is the potential for a vacancy at a “bad” time of year, like winter, when your vacancy will be more difficult to fill, or you won’t be able to rent your property for quite as much. On the other hand, many long-term tenancies are MTM. Two of my own tenants have been in place for a long time on MTM agreements – one for more than 10 years, the other for more than seven.

One of the main benefits of MTM agreements, is the landlord’s ability to serve a No-Cause Notice of Termination. The ability to serve this type of notice can be useful when you are dealing with a variety of tenant issues that don’t directly violate the rental agreement, but impact your ongoing relationship with them. Examples range from tenants with difficult personalities, active addictions, or untreated mental illnesses, to ones that don’t keep the property in a sanitary condition. We once had a female applicant who presented well during the application and move-in process. She was neat, clean, well-dressed, educated, and had decent credit and rental history. Only after she moved in did we discover that she was a raging alcoholic with mental health issues. When she was sober and on her meds she acted completely normal, but when she drank, she turned into another person entirely. She started banging on her neighbors doors, asking for beer or wanting to visit, trying to force her way in to their apartments. When the neighbors objected, she got nasty and would yell, scream and curse at them. On two occasions, it got so bad that they called the police and had her arrested, which escalated her inappropriate behavior. She started banging on their windows and walls as she walked by, dropping her dog’s feces on their door mats, and continuing to verbally assault anyone who was outside. Obviously, all these things are violations of the rental agreement and could have been addressed with a 30/14 (Notice of Termination with Cause), but with that type of notice, it was possible she could have cured. I didn’t want to keep dealing with this situation or subpoena the other residents to court to testify against her. Because she was on a MTM agreement, I was able to give her a Notice of Termination without Cause, just to get her to go away. It was a tense month, but in the end, her family was able to get her into a treatment facility and she moved without incident.

Often there are other less dramatic, but still irritating behaviors, such as lack of care of the property, continually paying rent late, parking on the lawn, disturbing the peaceful enjoyment of the neighbors, or any of a number of ways tenants can make a nuisance of themselves. In any case, having the ability to serve a no-cause notice is a huge benefit. Another benefit is that the tenancy just continues on indefinitely and you don’t have to redo paperwork every year. Also, if you want to change any of the terms and conditions of your rental agreement you can do so with a 30-day written notice to your tenant. That includes most law changes, trash service, utilities, etc. As long as the change does not in any way violate a tenant’s rights, you are free to adjust the contract. Also, if you have been too much of a softie and created waiver by letting your tenant get away with violations of the rental agreement, you can send them a 30-day notice to reinstate the original terms and conditions. I see waivers most often in regard to late rent and failure to charge late fees, but also pets and unauthorized occupants.

Leases are not so simple. In a FTL, the tenancy is for just that: a fixed term. Many tenants feel more secure with a lease because they can be assured of retaining possession at the stated price for that time period as long as they don’t breach the terms of the agreement. For landlords, a FTL provides at least some assurance that the tenants will stay for a longer period of time, and most tenants will fulfill that specific time period knowing that they or their co-signer will be held to it, or be required to pay a lease-break fee or actual damages. There are circumstances where tenants can legally break leases without penalty, such as deployment in the armed forces, and in cases of sexual assault, domestic violence, or stalking, as long as certain conditions are met, but in general, leases offer less flexibility to either party. You cannot change any of the terms or conditions without mutual agreement, or raise the rent during the term unless the lease contains an escalator clause. If you make a mistake on the lease document, you are stuck with it until it expires. Leases can also give you a false sense of security as tenant break leases all the time and you still have to re-rent the property and go after them for the fee or damages.

Also, the only way to get rid of a tenant on a lease is a Notice of Termination with Cause (30/14), which means a direct, provable violation of the rental agreement. Even then the notice is curable, but if the tenant commits an act or acts within six months of the date of issue of the 30/14 which are the same or substantially the same you can serve a 10-day Repeat Violation Notice for which there is no cure. The sticky wicket here is that if the tenant doesn’t move and the case proceeds to court you may be required to provide proof of the violation and the repeat violation to prevail, subject to the rules of evidence and/or credible witness testimony. Also, some judges are not excited to evict someone who, for example, doesn’t mow their lawn frequently enough.

I once had a family in one of my own rental homes on a lease where the mother was just a hostile, nasty person any time a repair was needed. This rental is next door to my home, and instead of calling, she would just show up at my door angry, no matter how miniscule the repair. On the other hand, she paid the rent on time and took okay care of the property, so I had no legal basis to get rid of her until the lease expired. I was really happy when they moved as it put me on edge never knowing when Nasty Lady was going to show up on my doorstep. If they had been MTM, I could have moved them out sooner.

Leases can be drawn up in two ways: 1) When the lease ends, the tenant is required to move without further notice, unless the landlord has made and the tenant has accepted an offer of renewal; 2) When the lease ends, unless either party has served notice to terminate the lease or renew the lease, it automatically converts to an MTM. If that is your intent, great; if not, then you are required to notify the tenant, in writing, of your intent to terminate the lease at the end, or to offer a lease renewal under the same or different terms and conditions. If the tenancy has been in place for less than one year, the landlord must provide notification at least 30 days prior to expiration. If the tenancy has been in place for more than one year, the landlord must provide notification at least 60 days prior to expiration (The cities of Portland and Bend may have different requirements, so check your local ordinances for confirmation.).

The timing of lease renewal offers can prove burdensome to track, requiring extra diligence on the landlord’s part. There is legal opinion saying that lease renewals can be combined with a rent increase, in theory bypassing the 90-day requirement for rent increases passed by the 2016 legislature. Problem is, this has not been litigated that I’m aware of, so we have no case law on which to base that opinion. If you want to be super safe, do what I do: Initiate the offer, in writing, at least 90 days in advance.

Tracking the lease expiration date, communicating with your tenants about it within the time allowed by law, negotiating the new terms, and having them sign a renewal takes time and effort, so be sure you’re up for that if you want to keep an FTL in place at all times. Both fixed-term and periodic rental agreements have benefits and drawbacks, make sure that you are making an informed decision when deciding which option works best for you.

This column offers general suggestions only and is no substitute for qualified legal advice. Always consult an attorney for advice related to your specific situation.

Posted by: Acorn Property Management on October 23, 2017
Posted in: Uncategorized