Lease Renewal Agreement: Landlord’s Guide to Retaining Tenants

Renewing a lease with a good tenant is one of the best parts of being a landlord. It saves you time and money finding new tenants and keeps reliable renters who already know and care for the property. Tenants often prefer to renew their lease rather than go through the hassle and expense of moving. A renewal agreement is crucial in this process as it facilitates the extension of the existing rental arrangement while allowing for necessary modifications.

Approaching lease renewal strategically and making the process smooth can result in happy tenants who renew repeatedly. Here is an in-depth guide about lease renewal to make sure the process goes smoothly for both you and your tenants.

Benefits of Lease Renewal for Landlords

Renewing leases with good tenants has multiple advantages for landlords:

Consistent Rental Income: Keeping tenants for multiple years provides predictable monthly income you can rely on. Long-term tenants are unlikely to leave suddenly, avoiding unexpected vacancies that reduce your earnings.

Avoid Turnover Costs: Landlords incur expenses to repair, clean, and paint the unit each time a tenant moves out. There are also marketing costs to list and show the property. A lease extension avoids these costs.

Minimized Wear: Long-term tenants are less likely to cause excessive property damage compared to new tenants.

Reliable Tenants: Tenants who renew are typically responsible for paying rent on time, keeping the unit in good shape, and avoiding complaints from neighbors. Holding onto a reliable tenant saves you headaches and reduces the stress of finding new tenants.

Reduced Legal Risk: Longer tenancy length reduces legal risks like fair housing lawsuits. Tenants are less likely to sue once settled in.

Lower Maintenance: Tenants tend to better maintain a property they view as a long-term residence rather than a short-term rental. This reduces your maintenance costs.

Rent Increases: As market rates rise, you can increase rents with renewals. Long-term tenants will often accept moderate bumps in rent to avoid the hassle of moving.

Tenant Loyalty: Tenants who renew multiple times tend to become loyal to you and the property. They refer their friends and help maintain a positive environment.

When to Start the Lease Renewal Process

When it comes to lease renewals, timing is everything. You want to start the process far enough in advance of the expiration date that you and your tenant have time to negotiate but not so far ahead that they haven’’t thought about whether they want to renew yet.

Typically, landlords begin discussing a lease renewal 90-120 days before the existing lease is set to expire. This gives you around 3 months for the process. For year-long leases, that means starting to talk renewals around January if the lease is up in April or May.

There are a few factors that might adjust your timeline:

Tenant Type: Longer notice periods of 120-150 days are common for commercial tenants or larger multifamily properties. A shorter notice of 60-90 days may work for individual residential tenants.

Market Conditions: If vacancy rates are low and competition is high, tenants may need more time to assess options. Begin outreach earlier if your area is landlord-friendly.

Lease Length: Shorter lease terms, like 6 months, may need only 30-60 days notice to renew. Stay on the longer end of the range for year-long leases.

Tenant Responsiveness: Some tenants may request more time to decide. Build in extra cushion if your tenants are slower to respond.

The most important thing is starting the process early enough for both sides to make an informed decision without last-minute scrambling.

How Landlords Can Increase the Odds of Lease Renewal

Proactively managing the tenant and property can go a long way toward lease renewal. Here are some best practices:

• Maintain a positive relationship with tenants and address any issues promptly. Happy tenants are likely to renew.
• Keep the rental property in good condition with maintenance, repairs, and improvements. Tenants want to stay in nice homes.
• Avoid increasing rent by large amounts between lease terms. Modest increases are easier for tenants to digest.
• Offer lease term flexibilities or options if desired by the tenant. This can incentivize them to renew.
• Start communication early and respond promptly to tenants during renewal discussions.
• Remind tenants of upcoming expiration dates. Some tenants may want to renew but forget to initiate the process.

How to Start the Lease Renewal Process

Once you’ve determined your ideal timeline, it’s time to kickstart the renewal process. Here are some tips for beginning smoothly that benefit both parties.

Send a Lease Renewal Letter: The first step is sending an official lease renewal letter to make your tenants aware that the existing lease is expiring. The letter should:

• State the date the current lease expires
• Include the landlord’s desire to renew the lease
• Provide the tenant a time frame to notify the landlord of their intent (30 days is standard)
• Note any proposed rent increases or lease adjustments
• Include instructions for the tenant to accept the renewal offer
• Reference the original lease agreement to ensure all terms are clear and consistent

You can send renewal letters through email or mail. Having the tenant sign to acknowledge receipt helps avoid any confusion. Keep copies for your records.

Highlight the Benefits of Renewing: Rather than just presenting the basic terms again, take the renewal letter as a chance to remind great tenants why staying makes sense. Emphasize things like:

• No need to move or change schools if kids are enrolled nearby
• Keeping a conveniently located home/office
• Avoiding new utility setups, rental deposits, etc.
• Building ongoing positive relationships with the landlord
• Potential options like going month-to-month after the new lease term.

Appeal to the intangible perks that save the tenant headaches by renewing.

Be Flexible About Terms: While you can begin the process with proposed new rent and terms, don’t make that your final offer yet. Build in flexibility:

• If raising rent, keep the initial increase modest.
• Note that terms are open to negotiation.
• Set a meeting to discuss options that address tenant needs.

By getting the renewal conversation started without hardball demands, you set the stage for a smooth back-and-forth.

Handling Tenant Responses about Renewal

Once you’ve made your opening offer to renew the lease, the ball is in the tenant’s court. Here are some ways to handle their response:

If They Want to Renew:

1. Confirm they want to stick to the proposed terms or open discussion. Don’t assume renewal means the tenant will accept rent hikes or other adjustments without negotiation. Clarify if they want to discuss other options before finalizing the new lease.
2. Make any negotiated changes in writing. If you reach an agreement about different terms, send an updated lease addendum to sign. Don’t rely on verbal agreements.
3. Have the new lease contract signed at least 30 days before move-out. This gives you time to do any needed unit repairs and showings if the renewal falls through unexpectedly.
4. Update your records and payment processing to continue smoothly. Adjust rent amounts and auto payments for the new lease term. Send a reminder of when new payments begin.

If They Decline Renewal:

1. Request written notice according to the current lease terms. Typically, 30 days notice is standard if the tenant plans to vacate. Thus, request written notice according to the current lease’s termination clause.
2. Clarify their final move-out date and lease end date. This helps prevent confusion about when you can begin re-renting the unit and protects security deposit refund rights.
3. Ask for feedback on why they are leaving. Objective feedback about issues that affected their experience can help you improve the property.
4. Review your system to get the unit turnover ready. Schedule repairs, deep cleaning, photography, marketing, and showings.
5. Begin screening new tenants about 60 days before move-out. This gives you time to fill the vacancy without a rent gap.

If They Request More Time to Decide:

1. Accommodate the request if possible. It is reasonable to allow long-term tenants who are undecided an extra 7-30 days or need to coordinate with housemates.
2. Get any extension agreed to in writing. Send a letter or email that allows a set additional period to finalize their renewal decision.
3. Touch base as the extension end date nears. Politely follow up to see if they need more time or are ready to provide final renewal notice.
4. Have a backup plan ready if the extension expires. Either way, proceed as if they plan to vacate without definitive notice so you aren’t scrambling to find a new tenant.

Negotiating Lease Renewal Terms

Negotiating renewal terms can be a win-win for landlords focused on keeping great tenants for the long term. Here are tips to navigate smoothly:

Rent Increases: If raising rent, follow these best practices:

• Research rents for comparable units in your area to set fair market rates
• Consider only modest increases for existing tenants, around 3-5%
• Communicate proposed increases 2-3 months before renewal to allow discussion
• Be open to compromises like graduated increases over a few years

Lease Length: Look at lease length factors such as:

• Your preferred minimum term (6 months, 1 year, etc.)
• What term the tenant requests
• Fluctuations in demand during different seasons or times of year
• Whether the tenant plans further ahead or prefers flexibility

A shorter lease may justify a higher rent. A longer lease may negotiate a lower increase.

Deposits and Fees: Many landlords waive or reduce fees for renewals, including:

• Waiving new security deposits for existing tenants
• Waiving or reducing renewal fees
• Waiving pet fees/deposits if pets are existing
• Locking in current rates for parking, storage, or other add-ons

This shows good faith and makes renewing more appealing.

Unit Improvements: During renewal talks, ask if any upgrades or renovations to the unit would convince tenants to renew. Common requests include:

• Painting or re-carpeting
• Remodeling kitchens or bathrooms
• Repairing appliances or fixtures
• Adding outdoor spaces like patios

Weigh the costs against the value of retaining great tenants and what rent increases renovated units could command. Thus, learn thoroughly regarding tenant improvement.

Moving Forward: The key is keeping an open dialogue. Listen to tenant concerns and communicate your needs clearly as well. With good faith efforts, you can often get to a “win-win” renewal outcome.

If you frequently deal with tenant turnover, you need to learn these 7 actionable strategies for retaining reliable tenants to maximize your rental income.

Handling Renewals for Problem Tenants

Non-renewal may be the best option with persistently problematic tenants. Here are some tips for this scenario:

Provide Proper Notice: Review your state laws and lease terms to ensure you provide adequate notice of non-renewal:

• Typically, 30-60 days is required, sometimes more for long-term tenancies
• The notice period may depend on the reason for non-renewal
• Your city may have additional “just cause” eviction rules

Follow proper protocols to avoid claims of illegal retaliation.

Related: Lease Termination Notice

Clarify the Reasons: While not always required, sharing objective reasons for non-renewal can reduce the chances of a dispute:

• Document any lease violations like late rent or unauthorized occupants
• Note complaints from neighbors or other tenants
• Cite damage to the unit beyond normal wear and tear.

Stick to factual issues in writing rather than vague “personal reasons.”

Offer Options to Remedy (If Applicable): If the issues are fixable (like removing unauthorized pets or roommates), you could offer the tenant a chance to comply in order to renew – with proper documentation by a reasonable deadline.

If the problems are not resolvable (like multiple disturbances), then renewal likely does not make sense.

Follow Official Eviction Procedures If Needed: If the tenant refuses to vacate after proper notice, you will need to file formal eviction proceedings. Having documentation will strengthen your case.

Evaluate Screening Criteria: Take notes on any recurring issues with bad tenants to tighten up your screening process. Consistently enforcing your criteria helps avoid renewing problem tenants.

Preparing the Unit for New Tenants

In cases where a tenant does not renew, smart preparation helps attract qualified applicants to minimize vacancies between tenants.

Make Any Needed Repairs: While residents are living in a unit, it’s impossible to address all normal wear and tear at once. Use lease turnover as an opportunity to:

• Repair any broken appliances, fixtures, or systems.
• Replace any damaged flooring or surfaces
• Repaint walls to refresh the color
• Do a deep clean, including windows, vents, baseboards, etc.

Tackling deferred maintenance keeps your property looking its best.

Photograph Updates for Listings: Fresh photos help new tenants visualize the unit’s current condition and layout. Walk through taking detailed shots of:

• Each room from multiple angles
• Any recent updates or improvements made
• Unique features or outdoor spaces

Good photos attract more interest than recycled old ones.

Update Online Listings: Draft a new compelling listing highlighting the unit’s amenities and location. Include the updated photos.

List the property at least 60 days before the prior tenants move out so it’s live and ready to show as soon as vacant.

Screen Applicants Carefully: Don’t rush into signing a lease with the first decent applicant – take time to thoroughly screen candidates to avoid another poor match.

• Verify income and employment
• Check references from prior landlords
• Review credit and background checks
• Follow your standard qualifying criteria

Careful tenant selection reduces turnover costs down the road.

By preparing in advance for vacancies, you can pivot quickly after one tenant leaves to bring in the next qualified renter. Get to know how you can minimize the rental vacancy rates of your property.

Adjusting to Month-to-Month Tenancies

Some landlords use month-to-month leases for flexibility or as a transition when a tenant stays past a lease expiration without renewing. Here are some tips:

Review State Laws on Month-to-Month Terms: Landlord-tenant laws specify how and when monthly tenancies can begin:

• Holdover tenants may automatically switch to month-to-month
• Written notice may be required to create a month-to-month after a lease ends
• Local rent control laws may limit month-to-month rent increases.

Know the requirements to avoid disputes over “implied” monthly extensions.

Set Clear Policies in Writing: Provide current tenants electing month-to-month a written agreement covering:

• How much notice is required by both parties to terminate (30 days is common)
• Rent due dates and acceptable payment methods
• Any increase in rent from the expired lease terms
• Updated policies, fees, or restrictions.

Documenting the updated terms and expectations avoids misunderstandings.

Enforce Consistent Protocols: Manage month-to-month tenants according to your normal procedures:

• Send timely rent reminders and late notices
• Follow up quickly on lease violations or complaints
• Provide 24-hour notice before entering for repairs
• Perform periodic inspections to check unit condition.

Looser terms don’t justify looser management. Follow your standards.

Re-Evaluate after 60-90 Days Max: A month-to-month situation should either transition to:

• A new long-term lease if the tenant is in good standing
• Non-renewal if issues are recurring.

Don’t let the tenancy continue indefinitely without clear direction.

While monthly terms provide flexibility, they work best as a temporary bridge between fixed-term leases.

Conclusion on Renewal of Lease Agreement

Lease renewal is a strategic process that requires careful planning and effective communication. Following best practices, landlords can ensure a seamless and successful lease renewal experience. Building positive relationships with tenants through transparent communication and fair negotiations benefits the current lease and sets the stage for future collaborations. As a landlord, embracing the lease renewal process is crucial to achieving long-term success in property management.

FAQs About Lease Renewal