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Understanding Leases a Necessary Money Skill

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Understanding Leases a Necessary Money Skill

This is especially true when it comes to money. Mastering money skills can be a challenge even for older adults.

One of the earliest opportunities to learn adult financial skills comes with renting an apartment. Before you sign that first lease—or any lease—it’s important to understand it. A lease is a legal document that sets out obligations and rights for both landlord and tenant.

One of the most important features of a lease is the length of the agreement. Your lease could be “month-to-month” or for a specific period like a few months or even several years. The most common residential lease terms are six months to one year.

There are pluses and minuses to both types. A month-to-month lease gives the renter the minimum commitment and maximum flexibility. Usually, if you want to move out for whatever reason, you just need to give the landlord a 30-day notice. Unlike a longer-term lease, there is no penalty for “breaking” the lease unless you fail to give even a 30-day notice.

So why wouldn’t a tenant always want a month-to-month lease? Many tenants don’t understand that the flexibility goes both ways. If a landlord chooses to stop leasing the property, finds a tenant willing to pay higher rent, or decides to sell the property, all the lease requires is a 30-day notice for the current tenant to move out. A tenant must accept that risk.

recent local example concerned 11 house renters who lived on the campus of the Star Academy, a former state-owned property near Custer, SD. Some of the tenants had rented for 14 years with month-to-month leases. When the state foreclosed on the property it gave the tenants 30-day notices to move. This was not received well by the renters, who faced the prospect of immediately having to find new places to live in a town with a limited supply of housing. Fortunately, the governor reversed the decision and gave the renters six months to find new housing.

As shocking and heartless as this move might have seemed to the renters, it was completely within the rights of the landlord, just as it would have been completely within the rights of any of the tenants to do the same.

It’s easy to get lulled to sleep by a month-to-month lease, especially when a tenant has lived in the property for year after year. However, if the prospect of having to vacate your home in 30 days is not appealing, it would be a really good idea to ask the landlord for a longer lease.

Before signing a lease, consider how long you are willing to commit to living in the property. What will best serve your situation? For some, it may be a lease that expires at the end of a school year, or in a year, or even in three to five years if you see no reason that you will need to move anytime soon. Be aware that by signing the lease, you agree to stay and to pay rent until the time is up.

Also understand that, unless the lease specifically states otherwise, neither you nor the landlord is bound to renew when the lease expires. So it’s important to renegotiate a new lease well before the current lease expires.

Before signing any lease, read it carefully. Ask clarifying questions. Be sure you understand the legal commitment you are making.

Related: Where Will Your Retirement Money Come From?

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