Deciding to renew a tenant’s lease comes with many considerations. Some important questions must be answered. Is the tenant a good candidate for renewal? When should you ask a tenant to renew? Should you increase their rent? If so, by how much? And the list goes on.
Creating an agreement with all of the necessary lease terms can be difficult, but renewing a lease has its own set of difficulties. To help make the renewal process easier, we go over some key things to consider when renewing a lease.
Benefits of Renewing a Lease
There are plenty of benefits associated with renewing a lease with your current tenant. When you renew, you don’t have to spend time and money finding a new renter. Between writing a listing, marketing your unit, screening applicants, and signing a new tenant, the process is long and costly.
Another benefit of renewing is that pre-existing tenants are familiar with the rules and expectations of the community and your property. Landlords often have agreements with their tenants about watering plants, mowing the lawn, and other upkeep needs. Leasing to a new renter will mean re-establishing those agreements.
What’s more, if you lease to a new tenant, you run the risk of them not being of the same quality as your current tenant. The last thing you want is to lose a high-quality renter, only to replace them with one who is late on payments and damages your property. Good tenants are worth keeping.
Additionally, renewing a lease with your current tenant means you don’t have to worry about your unit becoming vacant. Turning over a tenant can cost anywhere from a couple hundred dollars to a couple thousand. With repairs, marketing, loss of rent, and more, you can’t afford to have any vacant units.
Changes in Rent Price
You may decide to increase rent due to changes in your local market or upgrades you’ve made to the property. If you do decide to raise rent, it’s recommended that you only increase it by 2-5%. This way, you’re able to get what your property’s worth without pushing away good tenants. If you raise the price by too much, you run the risk of the renter declining your offer.
Another consideration is rent control, which limits how often and by how much landlords can increase rent. If you live in a rent-controlled city, be sure to check with your local laws to make sure you’re in compliance.
When to Offer a Lease Renewal
It’s typically best practice to offer your tenant a lease renewal 90 days before the end of their current lease. You should send your tenant a letter or email reminding them of their lease’s expiration date, your offer, and how long they have to resign. This way, they have the information in writing and can review it on their time.
It’s best to give your tenant 30 days to respond to your offer. If you don’t hear back from them within the 30-day period, you can follow up with an email, but you should avoid being pushy or overbearing. If the tenant declines, you should begin the process of looking for a new renter.
Depending on the terms of your new lease agreement, tenants may want to negotiate. They might request a lower rent increase, ask for specific repairs to the property, or negotiate other terms of the agreement.
Negotiating can be difficult, but you have to keep in mind how much more it will cost to find a new tenant and/or have a vacant unit. Say your offer includes a $40 rent increase, and the tenant wants to lower it to $30. You’ll lose more money with a 2-month vacancy than $10 less each month.
Reasons to Avoid Renewing a Lease
Depending on where your property’s located and how long the tenant has lived in your unit, you may not need a reason to deny a renewal. Everywhere is different, though, so be sure to consult your local legislation before making any decisions.
Your state may also have requirements regarding how far in advance landlords have to provide their tenants a notice. Generally, a 60-day notice is recommended. You should send your tenant a letter reminding them of their lease’s expiration date and inform them that you will not be offering a renewal.
One reason you may not want to renew a tenant’s lease can simply be that you have extensive repairs planned and you need the unit to be vacated. If this is the case, and the tenant has been a quality renter, you should try to relocate them to another unit if you have one available.
Of course, another reason not to renew a tenant’s lease is because they have been a poor renter. Here are a few commonly accepted legal reason not to renew — or good reasons regardless of legal concerns:
- Late or missed rent payments
- Violations of lease agreement
- Illegal use
- Refusal to renew lease
- Refusal to provide access
- Correction of violations
- Withdrawal of residential rental structure from the rental market
- Owner or relative occupancy
If you’re not renewing for one of these reasons, you should still send a letter with 60 days notice and state your reason for doing so. If a tenant refuses to leave, check out our article on how to get rid of a tenant after their lease expires.
To Renew or Not to Renew
Hopefully we’ve answered your questions about renewing a lease. There certainly are many considerations — from why to renew, when and how to do it, when not to offer a renewal, and more. The bottom line is that renewing a lease can seriously benefit your rental business, but only if you’re renewing with a tenant worth keeping.