Best method of renewing leases

Best method of renewing leases

Rental Property Investor · Charlotte NC Fort Mill SC Lake Wylie SC, SC · Member since 2009 · 174 posts · 103 votes

What's the best way to handle lease renewals?

I've been doing this landlord thing for 12 years now, but I'm just not happy with the way lease renewal time plays out.

FYI, My NC rental agreements are all month-to-month, which is fabulous for me, thank you very much. Their language allows for self-renewal every month. However, I like to officially renew yearly anyway, just to keep the paperwork tidy.

My SC leases all run for 1 year, which is fine. MTM versus 12-months is not an issue for me. The 1-year leases self-renew at the end of the 12 months. Again, however, I like to officially renew.

My tenants always want to stay. Any time a tenant has wanted to leave, it's always for relocation or they've bought a house or something, and they always tell me months before renewal. In those cases, I mail a letter outlining our conversation and extending the lease on a MTM basis until a certain date, etc.

In the past, I've simply sent out a letter outlining the renewal terms, and whether or not there is an increase or such. I sign it, and indicate that the tenant has so many business days in which to sign and return it to me in the enclosed SASE.

The problem is that I almost always have to pester the tenant to return the signed document. Even though they want to stay, and even in cases where I haven't increased the rent. These same people continue to pay rent (I collect electronically), even if I've increased the rent on them (I go into the debit system and change the rent--they say nothing about it).

I have half a mind to just send the same letter and state that these are the renewal terms, if you don't respond otherwise in XX days, this goes into effect, etc. But I really prefer that signed document.

So whattaya think?

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Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
14y

What I do that so far seems to work. My lease has an automatic renewal clause in it, for 8% increase and month-to-month term. When I send the renewal letter, I offer two choices. Automatic renewal according to the lease is one option. The other option is renewal at a lower increase, say 2% or 3%, but requires that they send in the enclosed form by a specific deadline (usually within two weeks) agreeing to sign new lease based on the lower increase terms; if form is not returned or not returned in time, the default is the automatic renewal based on the bigger increase - and my renewal letter emphasizes this. I've found that the only ones who won't send in the form to get the lower increase are planning a move ...

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  • Rental Property Investor · Northern, CA · Member since 2012 · 5k+ posts · 5k+ votes
    14y

    People procrastinate. Not sure how to fix that.

    I know there was a prior thread on here about offering a small "reward" (i.e. gift cert, etc) upon signed renewal. I don't do that, but it's something to think about.

    Not sure your idea of "if you don't respond otherwise in XX days this goes into effect" would be legal or stand up in court. I doubt it.

  • Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
    14y

    What I do that so far seems to work. My lease has an automatic renewal clause in it, for 8% increase and month-to-month term. When I send the renewal letter, I offer two choices. Automatic renewal according to the lease is one option. The other option is renewal at a lower increase, say 2% or 3%, but requires that they send in the enclosed form by a specific deadline (usually within two weeks) agreeing to sign new lease based on the lower increase terms; if form is not returned or not returned in time, the default is the automatic renewal based on the bigger increase - and my renewal letter emphasizes this. I've found that the only ones who won't send in the form to get the lower increase are planning a move ...

  • Rental Property Investor · Charlotte NC Fort Mill SC Lake Wylie SC, SC · Member since 2009 · 174 posts · 103 votes
    14y

    @Steve Babiak, I think that's a GREAT idea! Thanks!!!

  • Real Estate Investor · chicago, IL · Member since 2012 · 1k+ posts · 231 votes
    13y

    Rob K i remember you started offering a 5-year contract and you will give them a tv. do you give the tv right away or after 5 years? also, does this mean you will keep the rent the same for 5 years? so if $900/month, would be $900/month after 5 years?

    you should start a blog; your hits would be infinite.

  • Investor · Southeast, MI · Member since 2012 · 2k+ posts · 1k+ votes
    13y
    Originally posted by Scott W.:
    Rob K i remember you started offering a 5-year contract and you will give them a tv. do you give the tv right away or after 5 years? also, does this mean you will keep the rent the same for 5 years? so if $900/month, would be $900/month after 5 years?

    you should start a blog; your hits would be infinite.

    Our rents were flat for a while. I was doing some two year and also some 30 month leases. Now that the market is improving, I am doing twelve-month leases. I offer them free carpet cleaning at the time of lease renewal. I figure if they move, I will need to have the carpet cleaned plus deal with lost rent and some repairs. I would prefer that they stay. $60-130 for carpet cleaning is a small price to not lose any rent.

    The free TV was if they stayed five years. The rent will go up as the market changes. I have a lot of lower income rentals. The people tend to be transient and move often. I prefer people that stay a long time. Lots of people (especially the poor) love to get free stuff. If I can get five years of consistent rent from someone, I'm happy to buy them a TV. Besides, TV's are so cheap right now. I just bought a 42" smart tv for $306. That's a sweet deal.

    I've only bought a TV once for a tenant so far. They had been there 2.5 years, are excellent tenants, pay early, and are better than the neighborhood. They had talked about moving. I offered them the free TV if they signed a lease for an additional 30 months and they went for it. Prior to that, they were ready to sign a lease on another house. I told them my negative views about the school district they were going to move to. Combined with the free TV, they decided to stay. That was a year ago. They have 18 months left and they will have been there five years. They might move at that time, or maybe they will be settled in more. They talk about buying a house, but said they "can't save up for the down payment" and "stuff keeps coming up". If they do move, I hope it is into a home of their own.

  • Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
    12y

    @Terri Pour-Rastegar - any updates on what you decided to do and how that has worked out?

  • Rental Property Investor · Charlotte NC Fort Mill SC Lake Wylie SC, SC · Member since 2009 · 174 posts · 103 votes
    11y

    @Steve Babiak , I'm embarassed that I never responded to your last post on this thread.  Somehow I missed it.  Anyway....

    Yes, what I do now is I totally skip the requirement that the tenant sign and return anything regarding lease renewal (or rental increases, for that matter).  What I do instead is mail a letter about 45 days from the end of the current lease term, and say something like, "You'll be glad to know that Blue Sky Homes is renewing your lease for another year and the new rental rate of $______/month .....if you choose not to renew your lease, please complete and return the enclosed Tenant's Notice to Vacate within 30 days of the current lease-end period."

    This puts it in the tenant's hands if they don't want to renew.  My leases have a rental increase clause, listing a minimum 2% rental increase each renewal. So there are usually no surprises.

    I do not need to reward my tenants to renew.  I take excellent care of my tenants and my properties, and I'm quick to repair anything that comes up.  AC systems are professionally serviced twice yearly.  I send my handyman around to each property twice a year to clean gutters and check the exterior mostly.  However, I also notify the tenant as to when he'll be there, so that maybe he can make some other repairs as needed while he's there.  One tenant said she loves it because it's like having her own personal handyman once in awhile.  I give my tenants patio plants/flowers in the spring, just to say hi.  If they want to tackle a yard project, I'll pay for the materials while they do the work.  So my tenants are pretty loyal.

    So far, this is working out well for me.  However, I'm always open to suggestions to improve upon my systems.

  • Investor · Denver, CO · Member since 2015 · 570 posts · 521 votes
    11y

    I'd be surprised to learn that you can legally automatically renew a tenants lease without their approval. I'd imagine if a tenant didn't return your notice to vacate that you'd have nothing to legally stand on beyond that the tenants lease automatically turned into a MTM term.

    With such great relationships with your tenants that you have, why don't you simply tweak your renewal system, in a way that monetarily incentivizes your tenants to get their paperwork back to you?

    For instance if you have a tenant paying $800 a month and their lease is up for renewal, why not just send them the renewal paperwork with the new lease at $820, and a clause reminding them that without a signed lease they revert to month to month and the month to month rent is $900 a month?

    I think you'd see your renewals returning their paperwork much faster and in the mean time if they drag their feet, you're being finacially compensated for their procrastination. Almost all issues with tenants seem to be resolved easier if you employ a method that involves the carrot and the stick.

  • Rental Property Investor · Charlotte NC Fort Mill SC Lake Wylie SC, SC · Member since 2009 · 174 posts · 103 votes
    11y

    You bring up some excellent ideas, @Mike F.

    First though, my leases state that they automatically renew without any action from either party, unless one or the other sends a minimum of 30 days' notice.  The law is silent on this matter, I I've never heard of another local landlord who has run into problems with that issue.  

    However, I LOVE your idea of sending them a renewed lease at the increased rental rate, including a clause that without a signed lease, rent reverts to MTM at a higher rate.  I don't know why I didn't already think of that.  Excellent idea.  I will probably use this.  Thank you so much!

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