If you’re leasing a property, and want to make it easier for tenants to continue their lease agreement, you can easily create a lease renewal. Lease renewals allow landlords or owners to reduce issues and work by re-using the terms in an older lease, in one, simple document.
It’ll take much less time than drafting a new lease agreement, and if you don’t have major terms to renegotiate or add, lease renewal is a good way to continue with previous tenants. Reduce cost, possible vacancy, and unnecessary legal negotiation or paperwork, and simplify with this Lease Renewal template.
You’ll need to do all of the proper research and homework first, but this template will give you a head-start and a good framework. You should always consult a lawyer though before finalizing any contracts.
A residential or business lease is a type of long term contract. The resident, whether a company or person, is allowed to stay on the premises, in exchange for the payment of some financial sum. In a purchase contract, buyers will negotiate and pay the entire value for a property, and will not have any limit for how long they can stay there. The market conditions and seller's conditions set the price, and the buyer can negotiate with counteroffers. In the case of a lease agreement, it's uncommon to provide counteroffers. The landlord needs to forecast the market conditions well in advance and set a price that will be profitable for the length of the lease term.
A lease agreement is a primary contract that allows a tenant to stay at a property. As long as they make regular payments, they can legally remain, and the landlord must grant them access, and perform other services as stipulated in the contract. Many different forms of lease agreements exist, and the payment or 'consideration' may vary dramatically. These variations happen mainly because of market volatility, stability, or specific conditions with the landlord. If the landlord is a large conglomerate with properties spanning several regions, it may be more immune to local volatility. It might be willing to offer lease agreements that are long-term and free from rate increases and extra fees to deal with uncertainty. On the other hand, they may be less flexible for renters.
A lease renewal is a beneficial tool for renters and landlords. It is common for landlords to prepare the lease renewal early on, such as when the original lease agreement is signed. Financially, lease renewals benefit from a core fact: properties don't make money when they don't have occupying tenants. If landlords can keep residences occupied continuously, some extra profit can be passed to the tenants, to sweeten the deal.
Landlords usually steer tenants towards lease renewals by offering them favorable terms. When renters agree to renew in advance, the landlords can afford to lower the rates. Also, if renters decide to renew for longer, landlords can lower the rates. The renters perceive that they are saving money and hassle, and the landlords avoid losing profits due to vacancy. The vacancy can cost almost as much as the rental fees in the first place. Landlords still need to pay homeowner's association bills, some utilities, and especially taxes.
While it can be favorable to terminate a lease if the landlord needs to perform maintenance or renovations, usually termination is costly because of the cost of looking for new tenants to use the space. If you're a landlord, don't forget the marketing, listing, and employee hours required to show the area. All of the little things add up, especially if your property managers need to show the property more than once to find the right lessee.
In stable markets, where housing prices are not increasing or decreasing at all, the terms of rental agreements aren't nearly as crucial as in volatile markets. In markets with rapidly changing prices, companies wishing to maximize profits employ many legal tools and complexities in their lease contracts. Lease agreements in steady markets are typically 12 months or longer, but in volatile markets, a six-month contract or even month-to-month is quite standard.
Every time the lease renews, there is an opportunity to renegotiate the price. As prices for other properties increase or decrease, the rent should adjust to remain competitive. If the property is high-value relative to the market, it might need to take extra precautions to avoid vacancy, and the lease renewal is one of the tools landlords can use. Offering discounts to the tenants for staying longer reduces some risk for the property owner.
There are downsides with lease renewals and certain situations where they aren't appropriate. In very competitive markets where the risk of vacancy is minimal, lease renewals may decrease profits. Landlords can more easily offer much higher rates to incoming tenants than to offer slightly higher prices to renewal candidates. The occupying tenants can renew but with a brand new lease, subject to new rules each term.
Tenants can also fall into bad credit or have problems with eligibility for the lease. Most landlords perform credit checks just once, at the beginning of the first lease term, but it's certainly possible for the credit to fall into an unfavorable range without the landlord knowing. If the credit score lowers, most landlords don't charge more for the lease, but they might disqualify certain types of contracts, like high-risk month-to-month styles. Many rental homes don't allow renters to pay by cash either. Cash (or up-front payment) causes additional issues, like being unable to assess the resident's future risk. Not being able to trace where the money came from can be problematic and invite possible illicit activity.
If you are a landlord and are contemplating lease renewals, send them to your tenants for review 90 days before the end of their terms. They should have enough time to review the documents before the lease expires, or find another property. The earlier the lease renewal is signed, the better, as it reduces the landlord's risk and the tenant's risk. Landlords can even include 'deal sweeteners' to encourage tenants to complete renewal documents early, and further reduce risk.
In the original lease, landlords can specify renewal procedures or automatic renewal or conversion. Automatic renewal is useful as a method to discourage high-risk behavior by tenants. For example, many automatic renewal provisions of lease contracts stipulate that the lease will convert to a month-to-month program after the lease term, if not canceled or renewed for another term. Usually, these month-to-month contracts are quite costly and push tenants towards a less expensive alternative of signing a full term.