Housing & Mortgage
Is a Multi-year Lease a Good Idea? Probably
It can protect you from rising rent and an unplanned move
Here’s a question: Why are residential leases typically one-year? Commercial leases for stores and offices are frequently three to five years, sometimes longer, under the logic that those renters can’t reasonably face rising rents year-to-year nor find new rentals and move. Neither can you! The same logic applies to everyone. And indeed, multi-year residential leases are normal in other countries, like Germany and Japan.
So should you consider asking your landlord for a multi-year lease? Absolutely, says housing economist Jenny Schuetz, who recently wrote an article on the topic for the Brookings Institute, where she is a senior fellow.
Her reasoning is that moving is wildly “stressful, disruptive and expensive,” and that for the half of renters who spend nearly a third of their income on housing, the extra costs of movers and security deposits and application fees are too costly.
But really, the central variable in Schuetz’s equation is sanity, which is priceless. You know that wild-eyed look of people whose belongings are in boxes when the mover cancels? Don’t do that to yourself.
Phil Immel, a broker with Pacific Sotheby’s International Realty, says that whether or not you consider a multi-year lease should fundamentally hinge on your upcoming housing needs. Are you going to gain a paramour or child, or need to relocate for work or family? Or are you one of the half of all renters who stay put for three or more years? Choose accordingly.
To go the multi-year route, first gather some information: Check your local laws to see that multi-year agreements are legal. Say you’re looking for a Louisville home. Or a house in Orlando. Or an Indianapolis home. As a rule of thumb, states that lean red like Indiana, Kentucky and Florida tend to be landlord-friendly, and allow rental clauses that are difficult for tenants to affordably escape. To find out your state’s situation, Google “is [state name] a tenant friendly state?” Be wary of signing a longer lease in states without strong tenant protections.
Then do your research by asking neighbors how much rent increases from year to year. Some landlords jack the rent to keep pace with the market, while others, often small-time landlords with jobs and families who prize contented long-term tenants, don’t. The first scenario is a good reason to lock in a lower rent for multiple years to protect you from the whims of the market and your landlord.
My colleague Mark Stein has provided a handy guide to investigating your landlord, which is a must, given how a bad one can make life miserable.
Also, regardless of what a property owner may say when handing you the document, there’s no such thing as a “standard lease.” Ones favored by landlords include scads of fees that renters must pay that may or may not be reasonable or even enforceable in your municipality. A call to a local housing advocacy group or the city’s tenant rights office can often connect you with a super helpful human who can steer you past a bad deal.
On your own, pay close attention to nearby availability of homes the same size and type. “The market is not going to ease any time soon, and this has created a squeeze, especially for rentals with two or more bedrooms that can accommodate families, home offices and much more,” says Lauren Linzer, director of sales operations at furnished-housing site Travelers Haven. How arduous or annoying would it be for you to home hunt and move next year? Is inventory low? Do you have time to do that? “Rentable properties can be hard to find,” says Immel.
The big risk in a multi-year agreement is the arrival of a loud new neighbor, or a giant construction project beginning next door, potentially trapping you in a housing scenario that drives you bananas. Sanity first, remember? So don’t ink a multi-year agreement unless it allows reasonable exit terms, such as 30 days notice and a fee of one month’s rent or less.
Once you’ve got your two-, three- or five-year lease locked in, fair warning that your landlord will likely adopt some indolence, ignoring your less-than-fresh carpets and fading walls and non-essential repairs. But really, if you owned the place, would you be painting walls and replacing carpets? Probably not. That’s the price of sanity, and it’s tiny.
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