Pros & Cons of Long-Term Property Leasing
A long-term lease, typically classified as a rental period between six and 15 months, offers renters and landlords many benefits. If you're considering signing a long-term lease or are a landlord offering one, here are the pros and cons to help you evaluate if this option is best for your situation.
Long-Term Leases for Tenants
Those who find a residence to call home or an office for their business and can see themselves staying there for a while should consider the following benefits of long-term leases.
Pros
Having the same rent amount due at the end of each month for an extended period can benefit residents or businesses in better planning their expenses. Long-term renters may also feel a greater sense of home in their rental than those who sign shorter leases and move around more often.
Additional long-term lease benefits include:
Security: Long-term leases provide tenants, especially those with larger households or jobs in specific locations, with the guarantee they can rent their unit for at least six months.
Peace of Mind: With the peace of mind of a long-term lease, tenants do not have to find a new place every few months. These agreements often come with the option to renew, so tenants can plan to stay in their rental for even longer if they choose.
Savings: Renters typically save money on long-term leases by signing a lease for a lower monthly rate over a more extended period, especially compared to a month-to-month arrangement. Furthermore, landlords may extend their discount to tenants who choose the maximum lease term.
From a business perspective, long-term leases make sense for companies wanting to avoid the expense of relocating their operations. Stable businesses without plans to expand their team or change location often choose long-term leases to keep their overhead costs low.
Long-term leases usually offer businesses added flexibility and more negotiating power to secure specific terms. Furthermore, prominent storefronts or office buildings in high-foot-traffic areas stay occupied through long-term leases.
Cons
Tenants must also evaluate the drawbacks of signing a long-term lease. It can be expensive to break one at any point during the leasing term. The average cost to break a lease, sometimes known as an "early termination fee," usually includes an additional one or two months' rent to end the agreement, plus other charges.
Long-term leases can limit tenants' flexibility if their needs or budget change over time. A tenant who signs a two-year lease may need a larger unit after expanding their household or losing or changing their job. On the other hand, short-term leases give tenants much more leeway to pick up and move as their lives require. Some people simply don't like being tied down to one place for an extended period.
Long-term leases don't work for everyone. For example, military personnel or people with jobs that require frequent relocations may not want to sign a long-term lease because they know they'll have to move before the agreement expires. The same is true for students and other young adults who cannot commit to a long-term lease.
Long-Term Leases for Landlords
Now that you understand some of the benefits and drawbacks from a tenant's perspective, let's examine how long-term leases can impact landlords.
Pros
Long-term leases are usually a landlord's preference, as they prevent high tenant turnover and provide a more stable rental income. Moreover, having a tenant sign a long-term lease means the landlord can count on a set income each month for the next year or more, which can be helpful for budgeting and forecasting maintenance costs or other unexpected expenses.
Cons
The biggest disadvantage of a long-term lease for landlords is that it can be challenging to raise the rent should market conditions or the property's value increase over time. In some cases, state or local laws may also limit how much and how often landlords can raise the rent on their units.
Another potential drawback of long-term leases for landlords includes the responsibility to make significant repairs or improvements to the unit during the lease period and the possibility the tenant may damage the property beyond usual wear and tear. Therefore, landlords renting to tenants should always have insurance to protect their investments.
Should You Sign or Offer a Long-Term Lease?
While long-term leases offer benefits and protections for both landlords and tenants, both parties must understand the potential risks and rewards before signing on the dotted line. What matters most is weighing the individual situation to see what makes sense. If you're a tenant, ensure you understand all the potential risks and rewards involved before signing anything – and if you're a landlord, do the same!
