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Retaining tenants is important to ensure profitability, but it's just as essential for you to bind their tenancy to a lease agreement. It's a contract that both you and your tenant will abide by, setting guidelines and rules to follow. With that said, you should know the difference between lease extensions and lease renewals for both to make the most out of the deal.
Key Highlights:
- Understanding lease types is crucial for maximizing profitability and protecting your rental property; know when to use a lease extension versus a lease renewal.
- Lease extensions keep the original agreement intact, only adjusting the end date, making them ideal for short-term arrangements with minimal administrative effort.
- Lease renewals involve drafting a new agreement, allowing landlords to update outdated terms, adjust rent, or add new conditions that reflect current business needs.
- Effective lease negotiations require preparation and clear communication, focusing on rent, lease term, deposits, and responsibilities to reach a mutually beneficial deal.
- All agreements should be documented in writing, ideally reviewed by a legal professional to ensure compliance with local landlord-tenant laws and reduce legal risk.
What is a Lease Extension?
Lease extensions are basically what the name implies. It's an extension to the initial lease duration while retaining the original lease agreement. The new end date could be added in a new lease amendment. Other than that, the existing lease agreement stays the same. Lease extensions are usually preferred when:
- Both the tenant and landlord are happy with the terms
- The tenant only needs a short-term solution for a few more months
- The landlord does not want to draft a new lease agreement
- The rental property will be unavailable for another lease duration
The best part about lease extensions is that you won't have to go through the whole lease renewal process, especially the part where you have to draft a brand new lease agreement.
You won't really need to change the original lease if all the state and local laws still apply. This can even help improve landlord-tenant relationships, since the flexibility of the original contract greatly benefits tenants who don't want to commit to another lease term or want to pay the same rent price.
What is a Lease Renewal?
Compared to a lease extension, a lease renewal will demand a lot more attention from the landlord or property manager, especially since the changes may come with legal consequences if not drafted correctly.
Some of the local landlord-tenant laws that may concern the terms for a new lease agreement include security deposits, tenant rights, and rent control. A lease renewal is preferred when:
- The tenant requests a new lease agreement after the original lease expires
- The landlord wants to add lease rules to the new lease agreement
- Rules in the current lease agreement are now outdated
- The landlord wants to set a new rent price
While the lease extension extends tenancies with minimal administrative effort, lease renewal creates a more secure contract for property owners. Instead of lease amendments, property owners can set entirely new terms that would suit the business better.
A lease renewal benefits landlords since they will have more control over the agreement for long-term plans. Rent adjustments, for instance, are needed to match the current market conditions.
How to Negotiate Lease Terms with Your Tenants
Prepare for the Negotiation
Ultimately, you are the one who knows what's best for your rental property. You should determine what goes for your lease or rental agreement, such as the minimum acceptable rent price, length of lease term, and other important details. When creating a brand new agreement, keep legal requirements in mind.
Start Light
Before you discuss lease extension or lease renewal terms, you should open with a friendly and professional tone. Ask for their concerns and what they believe a reasonable rental rate is.
Main Negotiations
This is where you properly discuss the lease terms for the lease or rental agreement. You can be more open to tenant suggestions for rental agreement terms if they have been reliable during their tenancy. Key points to cover are:
- Rent Amount
- Lease Term
- Security Deposit
- Maintenance Responsibilities
- Early Termination Clause
- Potential for Increased Rent
These are the key differences when it comes to lease extensions vs renewals, apart from the lease term and rent amount. If you are creating a new agreement, be sure not to miss any of these key points.
Ultimately, you should not push too far to the point that your tenant would simply terminate their lease. With a successful negotiation, you will keep your rental unit or rental property occupied, and you will have a source of rental income.
Document the Lease Amendment or New Lease Renewal Terms
When both parties agree on favorable terms, put your new rental agreement in writing. You can use your existing lease as a sample format for a more familiar lease renewal contract. It's best to have a lawyer review it to ensure legal compliance.
Lease Extension vs Renewal FAQs
What are the key differences between a lease extension and a lease renewal?
- The lease extension simply extends the current lease terms without changing anything else in the contract. A lease renewal means that a new contract is signed, along with the negotiated terms.
Do tenants need to sign a new document for a lease extension?
- Yes, but only for the lease addendum or amendment instead of a new contract. With the original lease intact, the tenant will still adhere to the established terms and will simply stay longer than the original lease term.
Does a lease renewal reset the lease term?
- Yes, a renewal starts a new lease period from the agreed start date, even if it follows immediately after the previous lease.
Can a lease extension be shorter than the original lease?
- Yes, you can extend for any agreed-upon period, even shorter than the original lease, if both parties consent.
What paperwork is involved in a lease renewal?
- A new lease agreement must be drafted, signed, and dated, often including new terms and updated disclosures.
Can a landlord refuse a lease extension or renewal?
- Yes, landlords are not obligated to extend or renew a lease after the expiration date, but they must follow local notice requirements when ending a tenancy.
Our Contribution to Tenant Retention
As encouraging as lease renewal incentives are, your tenants will still consider their entire tenancy experience. That means good property management will play a part in whether your tenant wants to stay for another lease term or not.
Harland Property Management can take that responsibility off your shoulders. We aim to ensure that your business runs smoothly and your tenants remain happy—two of which are the key pillars to a profitable rental business.
Contact us today, and find out what we can do for your investment property!
