Guide to Lease Renewal: Pros & Cons + Template
The year has flown by, and it's that time to renew your tenant's lease again. The question is, should you? There are pros and cons to extending another lease to your renters that should be weighed before moving forward. Here's what to consider.
When Should I Offer to Renew a Tenant's Lease?
Depending on the area you live in, landlords are typically required to give at least two weeks' notice if they are not renewing a lease, and tenants are usually required to provide at least 30-days notice.
Although there's no law dictating when to renew a tenant's lease, you should do it as soon as possible. Most landlords will typically offer to renew a lease 90-days before it expires. If you wait too long, your tenant may decide to look around for a better deal or apartment.
Who Should I Offer Lease Renewals to?
Choosing the right tenants to renew a lease is straightforward and based on their reliability and how easy they are to communicate with. Here's what to look for.
Tenants that You Have a Strong Relationship with
Tenants that are reliable and respectfully communicative are ideal for a lease renewal. If a renter takes the time to develop a relationship with you and your property management, they are likely to stick around for the long haul.
Tenants that Consistently Pay Rent On Time
Consistent, on-time rent is the foundation of a good rental business. Tenants who are financially responsible and conscientious are usually good repeat renters.
Tenants that You Haven't Received Complaints from
Even if they pay rent on time, inconsiderate renters may not be worth the hassle. Avoid renting to someone who is noisy, rude to the HOA, demanding of the maintenance crew, and has a poor reputation around your apartment complex. Offer leases to renters that are liked in your complex, or at least those who don’t cause any issues.
Tenants Who Are Respectful of Your Apartment Complex
Property managers know that an apartment isn't the only area renters cause issues. Common areas like rooftop terraces, swimming pools, laundry rooms, and lobbies are all accessible to tenants. If your renter is known for littering or abusing the rules of the property, it may not be a good fit for lease renewal.
Steps for Renewing a Tenants' Lease
Once you decide which leases to renew, it's time to send a formal notice.
1. Send Your Renter a Lease Renewal Letter
A simple lease renewal letter is sufficient for inviting your tenant to rent with you again. Here's a template to walk you through the process.
Dear [Tenant Name],
Your lease expires on [date]. I would like to offer you another lease for [time period], which expires on [date]. The rent rate would [increase/decrease/be consistent at] be [rent amount] per month.
If you're interested, please let me know by [deadline date]. Otherwise, we will move forward with securing another tenant.
[Property Management Group]
2. Create a New Lease
You don't need to reinvent the wheel with a new lease. Instead, mirror the same lease as before unless you would like to make any changes.
3. Sign & Finalize the Details
Once you create a new lease, sign and finalize the details. Send a copy to your tenant for their signature or to ask any questions.
Pros & Cons of Renewing a Lease
Renewing a lease may sound like a win, as you won't need to look for new tenants or deal with the hassle of more paperwork. However, there are some pros and cons to consider.
Pros of Renewing a Lease
Let's start with the pros of renewing a lease and eliminating the need for extra work.
Retains the Best Tenants
One of the biggest wins of a lease renewal is retaining the best tenants. Good renters are a win for your rental business and make your job easier.
No Turnover Cost
A new lease means cleaning, updating, and prepping the unit for the next tenant. Renewing a lease eliminates most of your turnover cost and keeps more money in your business.
Reduces the Risk of Vacancies
Rental interruptions and vacancies quickly drain your profits. A lease renewal with a quality tenant reduces the risk of a vacancy and keeps your business as profitable as possible.
Builds Strong Resident Relationships
Building lasting resident relationships create long-term stability in your rental business. Offering lease renewals often leads to productive and long-term tenant relationships in your apartment complex. There’s also another benefit to consider. Having quality, long-term tenants creates a pleasant and rewarding atmosphere where other tenants are more likely to want to stick around.
Cons of Renewing a Lease
With so many pros for a lease renewal, it may seem like a win to move forward. However, there are some cons to renewing a lease as well.
Makes it Harder to Increase Rent
It's more challenging to increase the rent when you offer a lease renewal. Depending on your rental market and the type of rental property you're offering, there may not be a cap on how much you can raise the rent.
However, tenants are unlikely to sign again with rent increases. Before you raise your rent, check your market and direct competitors to determine the average rent in your area.
Remember to factor in tenant moving costs. A slight rent increase may be worth it to renters who don't want to spend the time and money to relocate.
Decreases Opportunity for Renovations
Long-term renters decrease the opportunity to make updates and renovations in your units. The process is inconvenient and difficult when renters are living on the premises. However, not spending money on renovations until a renter moves out could be a major benefit.
Risks Keeping Bad Tenants
Discovering you have bad tenants is part of the risk involved with running a rental business. They may suddenly stop paying rent on time or stir up drama in your apartment complex.
Final Thoughts - Should I Renew My Tenant's Lease?
Renewing a tenant's lease can be a positive if you're looking for stability and long-term tenant relationships. Before you move forward, consider the pros and cons and which make the most sense for you and your rental business.
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