When and How Landlords Can Renew Lease Agreements

Photo by Amy Hirschi on Unsplash

If your tenant's lease is coming to an end, and you have a decision to make.

Do you want them to stay longer, or do you want to find another tenant? You might be tempted to swap them with better tenants, but finding new ones is time-consuming, costly, and often a gamble. In other words, you might end up with tenants who are far worse than who you've got right now.

As long as they aren't challenging to handle, most landlords want to keep the current tenants. Now, let's go through the pros and cons of renewing leases. Then, dive into some straightforward steps to get your tenant to renew their lease with you.

Pros and Cons of Renewing Leases

While your first instinct might be to keep your current tenants and save time, there are still some downsides to that. You’ll have to decide if you want to renew the lease or not. Below, we’ve outlined the pros, cons, and reasons why you should renew a lease, so it’s easier for you to evaluate your situation:

Steps to Renew Your Tenant’s Lease

If you’ve been lucky enough to land reliable tenants, you probably want to keep them. Once you've decided to continue with your current tenants, you need to know the steps to renew the lease. The key here is to have excellent communication with your tenants, so you'll want to contact them via their preferred contact method.

Here’s an overview of the general steps:

Let’s get into the details.

1. Prepare for Potential Questions and Negotiations.

Your tenants might want to negotiate the rental price, switch to a month-to-month lease, or ask for some upgrades to the property. Know where you stand on these questions prior to discussing them. Prepare by thinking through the tenant’s overall behavior, the property’s condition, and the market conditions.

Here are a few tips:

- Tenant Requests: If your tenant wants new upgrades, it’s best that you weigh the cost of turnover against the cost of their requests.

For example, if all they want is a new coat of paint in the bathroom, it may be worth the investment to make the upgrade(s). You may have to do the same thing anyway if you were to find new tenants for the property.

- Market Evaluation: Your best bet is to do proper research on market conditions beforehand. You can use a fair market rent calculator to check comps and see if you need to adjust your rent. Charging too high might turn off potential tenants while charging too low cuts your profitability.

The end goal is to encourage tenants to sign longer leases, so you keep your property occupied and continue generating cash flow.

In short, you’ll need to weigh the risks and evaluate the costs of the negotiation versus a tenant turnover, then decide if the changes are worth doing to keep the tenant longer.

2. Get in Touch with the Tenant as Soon as Possible.

The better the tenants are, the more you want to encourage them to stay. It’s not always easy to do this, because quality tenants have their priorities straight and can easily apply elsewhere.

The first thing you want to avoid is to leave things to the last minute. Don’t wait until the last month before the lease expires to get in touch with your tenants. They might have planned to leave a few months before and if you haven’t checked in you'll have no time to find new ones. Moreover, they will need time to consider your lease renewal proposal, so you’ll want to give them the opportunity to do so.

Remember that some states also require how much notice you must give to tenants if you don’t plan to renew their lease. In general, it’s best that you speak to your tenant 90 days before lease expiration, so you’ll know the tenant’s decision earlier. The goal is to have 30 days for you to prepare for the next steps.

3. Verify Property Condition

Before you start the renewal negotiations, it’s always a good idea to at least drive by your property to see how the tenant is taking care of it. If you haven’t been inside in a while, it’s a good idea to schedule a walk-thru with the tenant. Don’t assume because they’re paying on time and never contact you with any issues, that they are taking acceptable care of your property.

4. Negotiating an Increase

We recommend emailing the tenant their current rent and what the market rent is currently (as long as it shows an increase!). Then, ask the tenant what they think would be an acceptable increase. You may be pleasantly surprised by what they offer. Remember to be professional and document everything.

5. Create an Updated Lease Agreement.

If your tenant agrees to the lease renewal, it’s time to draft a new lease for them to sign.

They may still come back with other requests and negotiations, which you’ll have to deem reasonable or not. If you disagree with the requests, you’ll have to go back with your offer. Otherwise, go ahead and revise the lease agreement and ask the tenants to confirm its contents. Be sure to ask if anything has changed on the tenant end: a new roommate or baby, pets, etc.

Ensure that all recent changes made to your rental policy are included in the new lease. This goes for both tenant requests and the changes that you want to be made. Don’t forget to consult with your property manager as well, should you have one. They can give you more insight regarding the new changes.

6. Sign the Lease Renewal.

Once everything is good to go, and all parties are happy with the renewed agreement, sign the document, have your tenants sign it as well, and file the new lease agreement with the original lease.

It’s also smart to have digital copies of the lease agreement, both for filing purposes and to send to the tenants. It’ll save some time from having to meet (which may not even be possible if the pandemic picks up again), keep the documents safe (especially from natural disasters like a fire), and make it easy to retrieve and review the document whenever needed.

Everybody will have an easier time complying and sticking to the new lease agreement.

Renewing Leases for Continuous Rental Investment Success

It goes without saying that being an excellent landlord from day one is the best way to encourage tenants to renew their lease by the end of the term. Do your best to ensure that the property is in great condition when they move in to make a good first impression. Then, all you have to do is keep up with your responsibilities according to the lease agreement and be quick to carry out maintenance requests so your tenants will want to stay with you.

Still, there are pros and cons to renewing a lease. For example, keeping quality tenants saves you time and money and gives you peace of mind. In contrast, keeping undesirable tenants isn't worth the decrease in rental profit, deterioration of the property, and time and money spent on management.

Either way, ensure that you do your homework and make the best decision for your investment.

If you need more help in any step of the lease renewal process, feel free to contact me from a property management perspective! My inbox is always open.