When to be flexible with a tenant, when to be rigid

Question

We ended up having to get our first tenant late in the season. Needless to say, we didn't get the price we wanted for the rent. However, we offered them a one time opportunity to have a 6 month lease to start. This way, if they decided to leave, it would place us at the beginning of the rental season. Their lease runs out next month.

Our problem is they are great tenants, but they want to continue doing 6 month leases which aren't beneficial to us. For them it works cause they aren't sure how long they will need the place. So do we take the risk and push them into an annual lease knowing they might walk and take our chances with the season, or do we give in to the 6 month lease and hope they bow out at the 6 months that are best for us?

Ron Brady · Answer

Were we in your shoes, we'd offer them two options. 1) 6 month lease with higher rent, 2) 12 month lease with lower rent. Tenant thus pays a premium for the flexibility of the 6 month lease. Best wishes.

Nathan Gesner · Answer

I would start with a 6-month or month-to-month to carry into the spring/summer cycle. After that, I would offer them a one-year lease at market rate or a month-to-month lease at an increase of 25% to offset the risk of them leaving in the middle of winter when it's hard to find a replacement. Those are the only options I offer.

Theresa Harris · Answer

Offer them a 6 month lease, but at a slightly higher price. Explain to them that you did the 6 month lease the first time because of the timing.  You know your market-will it be easier to find a new tenant in Feb or Aug?

Rick Bassett · Answer

Given where you are now, I like Ron's suggestion. But I would not have let the tenants get into the driver's seat in the first place. I would've offered them a six-month or an eighteen-month lease back when they first came in to keep the property on track with the clear understanding that all renewals must be twelve months.

JD Martin · Answer

Once a tenant has completed their initial lease term (ours are 12 months), we only do month to month. If they're a good tenant, there may be no change whatsoever in the payment amount; if they're a PITA tenant, there's going to guaranteed be a change in the payment amount to compensate us for their aggravation.

Longer leases really benefit the tenant, not the landlord. I've learned over the years that tenants will leave whenever they really need to leave, regardless of lease. That's why we also have a simple early termination for leases (1 month + deposit if there's no damages), because they get to walk clean and we get the property back, no fuss no muss. The only reason we even bother doing the 12 month lease on the front end any more is because we want to see how good of a tenant they really are, and no one decent will sign a M2M right out of the gate because they understand that's better for the property owner than for the tenant.

Our good tenants - the ones we want to stay - the change from leased to M2M is totally imperceptible. They often get less in rent increases than anyone who we were doing regular fixed leases for, because we have the flexibility to raise rents more or less any time if the situation arises, whereas with a fixed lease we're going to include an automatic rise because we have no way of knowing what the next 12 months will bring.

The only lease I've ever renewed was for a great tenant that needed a physical copy of a valid lease in order to qualify for her medical residency after she finished her doctoral degree in medicine. For her, we did it as a courtesy because she needed it.

Nathan Harden · Answer

At the end of the day, you are the boss. It is very honorable of you trying to find a solution that works for everyone but at the end of the day, it's your property, your rules. Sometimes if you give tenants an inch, they take a mile.

Ishmael Johnson · Answer

What part of Long Island?

Patricia Steiner · Answer

You're running a business and a 6-month lease is limiting in many ways - including financing where annual leases can be used to support repayment.  I recommend a compromise of sorts:

Do a one-year lease at market rent pricing - and offer early release from the lease after (# of months - maybe 8) with 60 days notice - so at 6 months, they could give 60 days notice and be released from the remaining term.

There is no business that operates successfully based on having different operating models for each client.  I recommend advising the tenant that a one-year lease term is required but that you will work with them on an early release to accommodate their concerns.  That's more than fair - AND it puts you in the driver seat, not the tenant.

Hope this helps...

When to be flexible with a tenant, when to be rigid

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