Are you a landlord seeking quality tenants? Prioritizing lease renewals can stabilize your rental income, save time, and foster strong tenant-landlord relationships. Discover strategies for increasing renewal rates, explore different renewal options, and learn when not to renew leases. With preparation and communication, you can enhance tenant satisfaction and maintain a profitable rental business.
Every landlord wants good tenants who will take care of their property and pay rent on time. But quality tenants aren’t always so easy to find. When you do come across a tenant who is trustworthy, you want to encourage them to renew their lease so they stick around as long as possible. But how do you do that?
To help you navigate the process smoothly, we’ve put together all the details you need to know about lease renewals and provided strategies you can use to get quality tenants to stay.
Benefits of Lease Renewals
Beyond just financial rewards, successful lease renewals have many benefits to offer.
Consistent Occupancy
When tenants renew their lease, it’s one less thing for you to worry about because it reduces potential vacancies which are often associated with high turnover costs.
Predictable Rental Income
Knowing that tenants will stay on for another year means you’ll have a steady cash flow and more financial security. Not only do lease renewals ensure a predictable income stream, but they also enable better financial planning and budgeting.
Saves Time
Showing units, drafting a lease, screening potential renters, and overseeing move-ins takes up a considerable amount of time. Retaining a tenant, however, enables you to use that time to address other pressing priorities.
Strengthened Relationships
Getting to know your tenants can have huge payoffs. It can set the foundation for a strong tenant-landlord relationship. And a tenant who has a landlord that respects them and cares about them, will be less likely to pick up and leave.
Lower Risk of Rental Arrears
Dealing with rental arrears or defaults can be a big headache. But when a tenant with a history of timely payments renews their lease, you can depend on them to continue that same pattern. Good tenants who lease from you again offer stability and also provide peace of mind.
Different Lease Renewal Options
Before you decide to offer a lease renewal, exploring the different options can help you determine which one is the best to suit both your needs as a landlord and your tenant’s preferences.
Fixed-Term Renewals
Fixed-term renewals maintain the existing lease terms, extending the tenancy for another fixed period, commonly for another year. This type of renewal ensures that both parties adhere to the established conditions for a specific duration. If you want to avoid the inconvenience and costs associated with frequent turnovers, including advertising for new tenants and potential vacancies, a fixed-term renewal is the way to go.
Month-to-Month Renewals
In contrast to fixed-term renewals, month-to-month renewals are more flexible. The lease renews automatically each month unless one of the parties gives notice to terminate. It enables either party to make changes or end the lease with a shorter notice period.
If a tenant is uncertain about their long-term plans, this lease option is a good idea since it gives them the freedom to leave with a short notice period, typically 30 days, without breaching the lease agreement. Alternatively, if you’re planning to sell or renovate their property in the near future, month-to-month leases allow you to accommodate changes in plans without being locked into a long-term lease.
Renewal with Adjusted Terms
Sometimes, either you or your tenants might choose to renew the lease with modifications to certain terms, such as adjusting the rental amount, changing the length of the lease, or updating clauses related to responsibilities or amenities. For example, a tenant’s personal circumstances might change, or they may ask you to add or remove a roommate, which could necessitate adjusted terms.
Strategies For Increasing Renewal Rates
Once you figure out which lease renewal option you want to proceed with, familiarize yourself with these strategies to help increase renewal rates.
Preparation Is Key
Preparation is the cornerstone of a successful lease renewal process. Begin by reviewing the current lease agreement to understand its terms, including the renewal deadline, any rent increase clauses, and provisions for early renewal notices. Simultaneously, assess the rental market to determine if rent adjustments align with current market rates.
Open Communication
Initiate communication with your tenants well in advance of the lease expiration date. This early engagement enables both parties to discuss potential renewal terms, any changes, and address concerns. It’s an opportunity to gauge tenant satisfaction and ensure their needs are met to encourage lease extension.
Offer Incentives
In addition, consider incentives like fixed rental rates or flexible lease terms as a token of appreciation for tenants who choose to renew their lease. If you find that a tenant is on the fence about whether or not they want to renew, think about offering one month of free rent. It’s a deal they’ll find hard to turn down.
Even small gestures can go a long way. Ask your tenant if they’d like you to repaint the unit or if it would make them happy to have a new appliance. Before you extend an offer though, be sure you have the budget to cover it.
Renegotiation and Upgrades
Lease renewals also present a chance to renegotiate terms. While negotiating, consider any maintenance or upgrades to the property may require and discuss these possibilities with tenants. There are many smart investments that can improve the appeal of your property without putting a hole in your pocket. When you offer existing tenants tempting upgrades or make noticeable improvements to the property, it may sway tenants toward renewal by enhancing their living experience.
Make Rent Easy To Pay
If you’re still requiring your tenants to write a rent check every month, consider more modern methods of rent payment. Today’s tech savvy tenants value convenience and offering them the choice to pay rent online can increase the likelihood that they’ll want to stick around longer.
Be Flexible
There may come a time when a tenant encounters financial hardship and might need to pay rent late. If this scenario pops up, consider giving the tenant a grace period—especially if they are typically a responsible and dependable tenant. It will show them you genuinely care and they’ll appreciate you making an exception when they need it most.
Early Notices and Documentation
Make sure to send lease renewal notices well in advance, complying with local regulations and the terms of the original lease. The formal notice needs to outline the terms of the renewed lease and provide tenants with ample time to decide whether or not they want to renew.
Think Twice Before Increasing Rent Prices
Raising the rent could be a major turn off for some of your tenants. If you plan to increase rates, conduct a thorough analysis of the local market first so that you have reasonable justification for the hike. Remember, you’ll also need to send a rent increase notice to your tenants.
When To Extend Renewal Offers
Give your tenants a lease renewal notice 90 days before the lease expiration date. You can do so via email, sending them a letter, or by delivering it in-person. Be sure to request that they let you know within 30 days. That way, if the tenant declines the offer, you still have 60 days to find a new tenant.
Reasons Not To Renew A Lease
While lease renewals pave the way for a profitable rental business, there are certain circumstances when it’s best to not offer one.
Non-Compliance with Lease Terms
If the tenant consistently violates lease terms, such as causing disturbances, not paying rent on time, or breaching other rental obligations, it might not be worth offering them a renewal.
Redevelopment or Renovation
If the property requires significant renovations, such as structural changes or extensive repairs, holding off on renewing leases until the work is completed is safer than putting your tenants at risk.
Market Changes
The real estate market is unpredictable. With market conditions constantly fluctuating, you may come upon a time where it makes more sense to not renew leases but instead, adjust rental rates or property usage.
Soured Tenant-Landlord Relationships
When you have a strained relationship with a tenant or differing expectations, sometimes it makes more sense to part ways. When there’s ongoing friction, miscommunication, or fundamental disagreements between you and a tenant, it can create a stressful living environment.
Finalizing Lease Renewals
Once a tenant decides to renew their lease, finalize it by having both of you sign off on it. By signing the renewal, both you and the tenant acknowledge and agree to abide by the terms outlined within it. The lease renewal serves as a legal contract, providing protection and clarity for both of you and helps mitigate potential disputes or misunderstandings that may arise during the renewed lease period.
Final Thoughts
In an ideal world, every tenant would renew their lease. However, the reality is that some tenants will inevitably move on. Some may be ready to buy a new home, others may need to relocate for work, and some may just want to move elsewhere for a change in scenery. Despite even your best efforts, tenants can’t stick around forever.
As a landlord though, you should always aim to keep turnover rates low so that your property remains profitable. When you are prepared with a good lease renewal strategy and follow our tips outlined above, you’ll be able to increase the chances that your tenants will renew their lease, benefit from a consistent rental revenue stream, and help you tenants stay happy.