Ultimate Guide to Lease Renewals in 2021 (+Free Template)
December 28, 2020
When a lease is ending, both the property manager (or landlord) and tenant have to decide if renewing that lease is the right choice to make. Extended and renewed leases provide stability for properties with a consistent cash flow and removes turnover costs for vacated units.
- Chapter 1: What Is a Lease Renewal?
- Chapter 2: What Is a Lease Renewal Period?
- Chapter 3: What Is the Turnover Cost of Not Renewing a Lease?
- Chapter 4: What Are the Benefits of Renewing a Lease?
- Chapter 5: What Are the Disadvantages of Renewing a Lease?
- Chapter 6: How Much Can a Landlord Raise a Resident’s Lease When Renewing?
- Chapter 7: 5 Factors to Consider Before Offering a Lease Renewal
- Chapter 8: How to Offer a Lease Renewal in 4 Easy Steps
- Chapter 9: Free Lease Renewal Template
When the lease ends, you need to know what’s involved in renewing it. The following information can help you make the best decisions possible during this process.
What Is a Lease Renewal?
A lease renewal means that at the end of the lease term that was previously agreed upon, both the landlord and tenant have to decide whether or not to renew the lease agreement. When you decide to renew a lease, you give the tenant the option to continue using the rental property for an increased amount of time. The agreement includes details about the rules and conditions that apply, with similar conditions to the original lease, which both parties will need to sign.
What Is a Lease Renewal Period?
What Is the Turnover Cost of Not Renewing a Lease?
What Are the Benefits of Renewing a Lease?
1. You Retain Your Best Residents
When you have an excellent tenant, you want them to stay as long as possible. It’s not always easy to find responsible and respectful renters, so it’s a great strategy to keep them when possible. Renewing a lease with similar terms to the original lease agreement locks these great tenants into longer contracts, keeping your best residents around. Having a strong resident retention strategy is a great way for property managers to improve their community’s goals.
2. No Turnover Cost
Rental turnover can be expensive for property owners, averaging $1,750 per vacated unit. When finding new renters and turning over a vacated unit, you’ll have the following expenses:
3. Saves You Time & Money of Finding New Tenants
Finding a new renter can be time-consuming. If you have another job, this can be complicated. Renewing a lease saves you this hassle. Property managers will be able to save money on the apartment listing websites and lead generation campaigns, as well as save time not needing to list these vacant units and showing those units.
4. Reduces Risk of Vacant Units
Lease renewals can help prevent vacancies. Being without a tenant means you’re losing income. Extending a lease guarantees that previous tenants who have a history of making rent payments on time will be locked into your unit, providing a stream of steady income to help make your mortgage payments.
5. Builds Better Resident Relationships
The longer you know your tenants, the greater your chances of building relationships with them. If your renter already understands and respects your policies, you have a lot to gain by keeping them around.
6. More Long-Term Renters
When you maintain tenants long-term, you have a steady income and know they’ll pay on time. Over time, your community will be full of long-term renters. These renters will have built a solid relationship with you and you know you will have to rely on them for consistent monthly payments.
What Are the Disadvantages of Renewing a Lease?
1. It Limits Your Ability for Rent Increases
When you have a tenant who wants to stay, there are laws in rent-controlled areas on how much landlords can increase rent. Even if you don’t live in a city or state that has rules on how much the rent can be raised when renewing a lease, your current residents may not want to stick around at a higher rent price.
2. No Opportunity for Unit Repairs & Renovations
Using the time when a unit is vacated is the perfect time to make overdue upgrades to your apartment units. Upgrading a unit can also allow you to increase the monthly rent and improve your multifamily cap rate. If there’s a tenant in the apartment, you won’t have a chance to renovate.
3. You Risk Keeping Bad Residents
It may be tempting to keep problematic renters to ensure you have income and filled units. However, it’s not always the best choice to let them stay if they frequently pay late or cause conflicts with other tenants.
4. Too Comfortable with Residents
It’s great when you get along with your tenants, but you need to be wary of becoming too lenient. If you know your renters too well, you might let the rules slide because you like the residents.
How Much Can a Landlord Raise a Resident’s Lease When Renewing?
5 Factors to Consider Before Offering a Lease Renewal
1. The Current Resident’s Reputation
Does your tenant pay on time? Do they treat you and other residents with respect? If your current resident has a strong reputation of treating the unit and neighbors well, respects your community’s rules and regulations, and has a history of paying rent on time, then there should be no reason not to renew the lease.
2. Your Current Relationship with the Tenant
How does the resident relate to you? Do they respect the rules and regulations? Do they communicate well? If you have a strong relationship with your resident, then a lease renewal is a good choice.
3. The Tenant’s Relationship with Other Residents
Do they respect others who live near them? Have you received any complaints about their behavior? If you consistently have complaints from neighbors, it’s a sign you may want to avoid offering a lease renewal to this tenant.
4. The Resident’s History of Paying Rent
Does the tenant pay rent according to the lease agreement? Do they often send funds late? If your tenant in question has never missed a payment, then you should offer a lease extension.
5. Will the Resident Be Comfortable with a Higher Rent?
As you draw up new lease terms, think about the pros and cons of increasing the amount. Consider how much you want the renter to stay, and make a decision accordingly. If the previous lease agreement was at a rent amount that you were not comfortable with or wasn’t providing enough cash flow for your expectations, you may consider finding a new tenant at a higher rent amount.
How to Offer a Lease Renewal in 4 Easy Steps
1. Know Your State’s Lease Renewal Period
Before you start drawing up a lease agreement, you need to know the legislation in your region. Renewal periods vary from state to state, although most fall in the range of 30 to 60 days. States also have different guidelines on what has to be in the lease renewal notice and who can receive this document.
If you miss the time frame for sending the renewal notice, you may have to start over. As a result, your unit may stay empty for longer, costing you money. States may not require more than 30 days’ notice, but experts recommended closer to 90. They indicate this amount to allow enough time for you and the renter.
If you offer a renewal 90 days before the lease is up, you can give the tenant 30 to respond. After they answer, you still have two months to find a new renter if they decline the offer. Once you understand the applicable legislation, you can set appropriate deadlines to proceed with the renewal process.
2. Send a Lease Renewal Letter
It’s best to formalize your offer through a letter. Don’t forget to sign and date the correspondence. Include the address of the property and the name(s) of the tenant(s).
In the letter, indicate when the lease expires and whether or not you’ll renew it. Include information about how to contact the property manager or landlord should questions arise. Depending on the situation, you may need to include additional information. If you aren’t renewing the lease, explain that the tenant must leave and clarify the date they have to be out.
If you’re offering a renewal, including the length of time, new price, and any additional terms. Schedule a meeting with the resident to discuss and sign the new agreement. There’s also the option to convert the current lease into a month-to-month rental. If you want to pursue this possibility, explain to the tenant how it works.
A sample renewal letter might look like this:
Dear (Resident Name),
Your current rental period expires on (mm-dd-yyyy). It’s been great to have you as a tenant, and I’d like to offer you a lease for another (one-year, two-year, etc.) period.
The rate would be (amount) per month. Are you interested in renewing? Please let me know by (mm-dd-yyyy).
If you tell me you’re interested, let me know before (mm-dd-yyyy) and I’ll send you the new lease.
Let me know if you have any questions.
(Your property group name)
3. Create a New Lease
Writing up a new lease agreement is essential, even if you don’t have many changes to make. The document should include:
- The names of those entering the agreement (landlord and tenants)
- Address of the rental property
- Description of the unit
- Monthly rent amount
- Date by which the landlord expects payment each month
- Penalties for late payment or breaking the lease
- Information about what utilities the renter must pay
- Regulations regarding quiet hours (especially in multi-family dwellings)
- Security deposit amount
- How and when the renter can get their security deposit back
- Information regarding whether renters can have pets
Specific parts of a lease agreement might be illegal. Check your local law, but in general, you can’t:
- Reject tenants based on religion, gender, race, or sexual orientation
- Ask them to promise they won’t sue the property owner
- Have renters waive the right to get their security deposit back (less the costs for cleaning and repairs)
Lease agreements usually last at least a year. A document allowing someone to use the property for a shorter term, like 30 days, and may be called a rental agreement.
Make sure you check your state law to find out what must be in the lease agreement. In this way, you protect yourself from future legal problems.
Some states allow verbal lease agreements. However, going without a written document leaves both the renter and the landlord without essential legal protection. Putting everything on paper helps avoid confusion over the terms of the contract.
4. Sign & Finalize the Lease Renewal
Send the new lease to your tenant, or sit down together to look at it. If they approve the agreement after review, it’s time to sign.
The landlord and the renter must sign the agreement to make it legally binding. Once this is complete, you can each file your copy until the next renewal.
The lease renewal process can be very straightforward, especially when renters respond promptly. After it’s over, you can rest assured that you have an excellent tenant for the remainder of the agreement period.
Lease renewals can allow you to retain your best renters and guarantee a steady income source. Be sure you complete the process within the period your state requires. Carefully consider the pros and cons before making your decision about retaining a resident.
To renew a lease, send a letter to inform your renter, then draw up the agreement for both parties to read. During this process, you can raise the amount you charge each month. If the resident accepts the terms, you can both sign the document and file it.
And that’s it! You’ve successfully renewed your resident’s lease.