Renewing leases with great tenants takes much of the stress out of being a landlord. Lease renewals are excellent for cash flow to keep your landlord business profitable. However, it’s not always worth renewing a lease with a tenant. In some cases, taking the time to find a new tenant for your property is a better option.
Generally, lease renewals are essential for the success of your property management business. It is a straightforward process that can benefit both you and your tenant. To ensure there are no issues along the way, we have created the ultimate guide to lease renewals for you.
Why are lease renewals essential?
Let’s say you have had a tenant for six months or a year, and everything has gone relatively smoothly. They are quiet, pay the bills on time, and rarely trouble you for repairs. These types of tenants are longed for by all landlords, so it’s worth making an enormous effort to have them renew the rental lease agreement. Securing great tenants in your property is the best way to make your rental business a success.
When these precious tenants leave, you need to invest time and money into finding new tenants. These costs can include:
- Repairs and renovations
- Tenant screening
- Loss of income from an empty property
How much does your time cost? Because the above tasks will require you to invest your time to get the property ready for the next tenant. Some studies suggest that finding a new tenant and getting the unit ready could cost anywhere from $100–$2,500. This price can rise if the unit is left empty for a significant amount of time.
Some circumstances that result in vacancies are unavoidable. Changes in family or employment situations can happen, or the tenant could be looking for something different that might make renewal impossible. Nevertheless, it would be best if you continuously make efforts to renew with the best tenants.
How can landlords encourage lease renewals?
The first thing to avoid is leaving things with your tenant to the last minute—in other words, the month the lease is about to expire. Tenants tend to see right through this and will assume you are only concerned for the renewal.
Being an awesome landlord from day one is the best way to create a smooth lease renewal process. Make sure the property is in excellent condition before they move in and that all appliances are working. Be quick to carry out any maintenance requests and offer online rental payments for convenience—yours and theirs.
However, if your tenant causes you more problems than the value of their rental payment, don’t feel you have to renew their contract. A good practice is to send an email informing them that you are not renewing leases at the moment. It isn’t the law, but it is the nice thing to do and may save you from confrontation later down the line.
Steps to lease renewal
Excellent communication is vital for renewing leases. As a successful landlord, you should encourage open communication with your tenants. You may opt to communicate through email, text, or in person. We would recommend that you stick to your tenants’ preferred method of contact.
1. Prepare for potential questions
Tenants might want to negotiate the rental price or switch to month-to-month leasing. They may also only agree to renew their agreement if some upgrades are made. Whether you agree to the tenant’s request depends on a few factors—the tenant, the unit’s condition, and market conditions.
2. Contact the tenant
It is best to contact the tenant well in advance. Some states stipulate how much notice you have to give tenants if you don’t intend to renew the lease. In case the tenant doesn’t want to continue the lease, you can start getting prepared. If you have made any changes to the lease agreement, you should inform them at this point.
3. Create a new draft of the lease
If your tenant is happy with any changes you have made, you can begin creating a new draft of the lease for them to sign. They may come back with some negotiations if they feel it’s in their interest. If you think they are reasonable, you can add these to the new lease. If not, you will have to go back with your offer.
4. Sign the lease renewal
Once all parties are happy with the new lease, you can sign the agreement and carefully file it along with the original lease. With the latest technology, it is a good idea to provide the option to electronically sign leases as it saves time from having to meet (which may not even be possible with COVID-19).
What to negotiate during lease renewals
The three typical negotiables are the rental price, length of the lease, and property upgrades. Whether you choose to negotiate will depend on how much you value your current tenants and whether you have the financial means to do so.
Here are some handy tips on what to negotiate when renewing leases.
You may plan to increase the price while your tenant might hope for a discount. Consider the state of the rental market. What are the current average rental prices for similar properties in your area? Will it be easy to replace your tenants? Can you afford to lower the price as an incentive to keep them?
The benefit of month-to-month leasing is that you still have a tenant. It might not be as stable as a long-term lease, but it is better than having a vacant property. You will be in a better position to raise the rental price. While your tenants can appreciate the added flexibility, it does mean that at the end of any given each, you could have an empty property.
The question here is whether the upgrades are justified or your tenant is pushing their luck. It’s probably not in your best interest if the kitchen is perfectly functional, but they ask for a new one. If the kitchen units are 30 years old and the investment will pay off in the long run, it could be worth considering.
The bottom line
As a property manager, negotiating lease renewals is part of your role. It is incredibly beneficial to master the art of optimizing the process for both you and the tenant.
One way the most successful landlords manage renewing leases is rental property management software. Using an app to manage rentals helps with lease renewal management. You can also use a property management app to collect online payments, communicate with tenants, and manage maintenance requests.
What are the ways you go about renewing a lease?
Share with a comment below!