How To Approach Tenant About Lease Renewal

14 Replies

Hello everyone,

I have purchased my first 3-family investment just a little over a month ago and the current lease on my 4-bedroom unit will be ending on June 30, so the tenant has one more month of official occupancy.  

This being my first, I'm a little unsure on how to approach the tenant and ask whether they will be renewing, or if they will be moving out.  When I first talked to them, they said they would like to stay (they think).  I would like to address this, this weekend, as if they will be moving out, it would give me time to prepare for a new tenant.  

So my question is, should I just casually approach them and talk to them about whether they want to renew and stay, or is there an official form I should drop in their mailbox.  

If they do renew, should I seek 6 month, 12 month?  What is the standard?

As I said, it's a large 4 bedroom unit, with a family and two brothers living there.  They are nice people that actually help me around the yard, bring flowers for the front of the house etc.  I would like them to stay, but obviously I can't make them.

That leads to, if they do stay, should I risk raising their rent a few dollars, or just keeping it the same for the next contract?  Currently, they are paying $1,325 and I pay for water.  Should I be firm with a $20-40 increase, or let them slide, till I become more comfortable over the next year?

Thanks in advance!

Konrad

These are great questions. As far as whether you should raise the rent or not...do some market research. What are similar type homes in your area going for? In other words, would your tenant have better options? Remember, it is expensive and inconvenient for them to move...so they will only do that for good reason.

By the same token, if you raise rents and then are going to be well over market, you could lose your tenant and that is always costly. So know your market.

Give tenants a reason to want to stay. What kind of a landlord have you been all year? Do you take good care of the property? Do you perform preventative maintenance? Do you respond quickly to their concerns? If you have been a good landlord, they are more willing to want to stay. Have you contacted them through the year just to see if they are satisfied?

So first thing is that I like to start 45-60 days before lease renewal I congratulate them on coming up on an anniversary. I tell them what great tenants they have been and that I would love to have them stay for another year. Then offer some sort of inducement - that also improves the property. 

For instance, maybe it is time to change out the vinyl floors; or paint the interior; or change the carpet. Maybe you want to install ceiling fans in more rooms. You could upgrade appliances. It also helps if you have been listening to the tenant throughout the year...they may have had a recurring problem that you now just replace that item altogether.

When you provide a great home for tenants at a fair price, they do not want to leave unless their life changes. You can raise the rent and ask them to renew the lease without fear. If you have been a good landlord and you are priced competitively and they still move out  - it wasn't because you went up a few dollars. Something else changed in their life!

Does your lease actually end at the "end date" or does it state that it automatically goes month-to-month after the original term?

Since tenants should give 30 day notice that they intend to move (at least in Maryland), I approach them 60 days before the end of the lease.

I send a letter reminding them of the end of the lease and offer three options. I ask them to check their option of choice, sign the letter, and mail back to me no later than X Date, which would be 30 days before end of lease.

Option 1--Do nothing and let the lease go month-to-month.

Option 2-- Renew lease for another year. No rent increase (because the numbers work). An incentive such as a small upgrade or $75-100 off the first month of the new lease rent.

Option 3--Notify us that they intend to vacate no later than the end date listed on the lease. Choosing this option, signing, and sending back to me would suffice as their notice.

So far, I've had 2 of my tenants choose option 2! :-) I just sent another out to a 3rd and 4th tenant, hoping they have similar responses.

Thank you both, Lou and Nicole.  Great points and information.

@Lou Castillo I just purchased this property in April and have inherited tenants for both units out of three (one being vacant).  However, they have told me already that they like the fact that I take care of the yard and try to make it look nice.  I'm thinking of buying a used playground off Craigslist for their kids to play.  I'm hoping this would also attract families in the future.  With that said, I think the landlord/tenant relationship is good.

I really like the idea of making an improvement to their unit if they decide to stay as an incentive, improving the property at the same time.

@Nicole W. I will have to check my lease in regards to the month-to-month option.  I was under the impression that it ends at the lease end date and then it's either renew or leave.  Obviously, I'd prefer them to renew rather than the month-to-month.  

I will definitely use your option categories for submitting such a letter in the future.  Since it looks like I'm a bit late this time around, I will most likely see them this weekend.  Afterwhich, I'll casually ask them and then let them know that I'll drop off an official letter, where they can check off a box of choice of their intention.  Keeping my fingers crossed for option 2!

I do nothing unless I want to change terms, increase rent, etc...

My lease requires 60 days notice by either myself or the tenant for changes or termination. 

If that doesn't happen it renews for a full 12 months. I make sure to go over that carefully with all new tenants.

Originally posted by @Max Tanenbaum :

I do nothing unless I want to change terms, increase rent, etc...

My lease requires 60 days notice by either myself or the tenant for changes or termination. 

If that doesn't happen it renews for a full 12 months. I make sure to go over that carefully with all new tenants.

 Good idea also.  I'll be sure to do that while singing my next lease.  

I'm assuming if you have that in place, if you don't hear anything from the tenant before the 60 days of the lease's end, then they automatically renew, correct?

I do something similar to what @Nicole W. wrote, but if I want them to stay I don't put option 3 as vacate - I want them thinking stay not go! My option 1 would be month to month with the lease's rent escalator kicking in, so 8% increase for this option. My option 2 would be renew for another year, with smaller or no increase. My option 3 (not always offered), when offered, is to give the tenant something they want and have asked for in the past, but with a bigger rent increase than option 2.  If they aren't asking for some feature, I skip option 3 ...

And this is always in writing. 

I do exactly what @Max Tanenbaum does. My leases require 60 day notice of intent to renew, otherwise it automatically renews for another year. I don't want to send them a reminder and get them thinking that maybe they should look around. They have the lease, know (or should know) the terms, and if they intend to move they'll let me know. Of course, as Max said, if i intend to raise the rent, or make any other changes, I let them know in advance of the 60 days as well. 

As far as 6 mos or 1 year leases, it depends on your market. I also do 12 months. I also rent in a fairly dense student area, so I try to align all of my leases to expire in May or June, as that is the most active time for students to move around.

I agree with all of the above of what everyone one posted.  I would also add that you might want to look at when your "new" lease will end if they sign a new lease.  I made the mistake a while ago of having one expire in November and it took until February to fill it. So instead of putting myself in that problem again I now will make a 15 month or 16 month lease to get me back to an April move out date because the weather is better and people are more likely to move then.  Since you are in Connecticut this might be an idea, since I am in Illinois this seems to work really well.

@Konrad L. With the way CT laws are and how hard it is to evict someone I would just let the lease go to a month to month unless they contact you and request a year lease. 

The fact is although you have a good feel for the tenants things can go sideways quick. Especially with a big family living in a 4 bedroom.

Give yourself as many options as possible to deal with that and don't paint yourself into a corner for another year. 

I am from Connecticut as well. Where is the property?

I really like the strategies Steve, Brad and Frank point out and the thought process behind them.  This will definitely be something I will put in tact for the next lease signing and keep in mind.  Thank you all for great feedback.

@Michael Noto I'm a bit worried about the month-to-month lease.  I think I'd be more comfortable knowing when they at least have an option to vacate.  Maybe I'm overthinking it.  I am from Meriden and my property is also in Meriden.  Glad to see a neighbor on here.  Where do you have your property/ies?

@Nicole W.

@Steve Babiak   Is there a standard form you guys use for renewals with such options and 'check boxes' for the tenants to sign, or is this something you have drafted yourselves?  Is this considered an important legal doc, or just a gateway to signing a contract, which they would supersede the renewal option doc?

Most tenants don't even realize that their leases revert to a month to month @Konrad L.

I have properties in Plainville, Bristol, New Britain, and Southington. 

@Konrad L.

This is just something I drafted up myself in a professional format and manner. I'm sure it could become a legal document if for some reason you and the Tenant ended up in court over something regarding that form. That's why you always get things in writing...because you never know when you need to show proof of something someone said or signed.

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