When a lease is within 90 days of expiration, a landlord or property manager who’s decided they want to extend the terms with their tenant needs to send over a lease renewal. This form, when executed, serves as a new lease. It usually doesn’t change the terms much from the old lease but provides some important updates, such as notification of rent increase or new fees. The tenant needs to sign it to officially retain their occupancy for whatever period of time the two parties have agreed upon.
What is a lease renewal?
A lease renewal is the official agreement between landlord and tenant to reenter into a formal lease for a defined period of time according to set terms. To avoid any misunderstandings down the road, it’s important to have signed paperwork -- a lease renewal agreement -- in place that outlines the new terms of the lease. Some landlords begin the renewal process by sending a brief formal Lease Renewal Offer to the tenant. It should stipulate:
- The length of time of lease renewal offered
- The monthly rent going forward
- What date the current lease is set to expire
- The deadline to respond/renew
What does a lease renewal include?
Some landlords choose to have tenants sign a lease anew when extending their rental agreement. Others go with a much briefer lease renewal agreement that looks like the renewal offer referenced above. This form may specify:
- The length of the renewed lease (sometimes with an option for month-to-month)
- Monthly rent
- Any major changes to the previous lease (i.e., rent is now due 10 days later each month)
- A statement that terms and conditions from the previous release remain in place
- Date old lease expires/new lease begins
- A section where tenant has to mark their official decision to renew or not
- A date to vacate if not renewing
Breaking down the forms
There aren’t many sections in either a lease renewal offer or a lease renewal form. Many landlords use a renewal offer as the preamble to a brand new lease, which then gives each party two forms to consider -- one short and succinct, and the other quite a bit longer and more encompassing.
While tenants consider the most important elements of renewal forms to be the new monthly rent line item and the length of the lease, landlords may see it a little differently: Sometimes a tenant hopes that by remaining quiet and letting a lease run out, they will be freed of a commitment to the landlord. However, for a landlord, the deadline to sign the renewal agreement and the “date to vacate” section are the two elements that really protect the landlord. If tenants are attempting to punt the ball, i.e. not give their decision to move because they have a tentative new plan on the table, the lease renewal is a landlord’s chance to force a decision.
Both of these forms seem innocuous and informal because they’re so short but can actually lock the tenant into a new agreement if they try to ignore them. It’s standard for some landlords and property managers to state that if a tenant does not complete the form and make their wishes known, the lease automatically re-ups with the landlord’s stated terms. However, a landlord in a dynamic market or one who doesn’t particularly like the current tenants can take this opportunity to push the tenant toward vacating.
Potential issues and tenant loss
If a good landlord-tenant relationship has been built, the lease renewal tends to be a simple enough process. However, occasionally issues can arise when a tenant wants to change old terms (for example, they want a pet or an additional parking space). Or, sometimes there will be pushback because a tenant doesn’t want to be locked in for another year or more. They might be considering a home purchase or a move for work, or they may just feel they’ve earned the landlord’s flexibility. Nonetheless, a landlord who wants to be protected from sudden upheaval needs to make sure a lease renewal has been executed by the time the old lease expires. In a pinch, even a month-to-month rental lease agreement is preferable to no signed agreement whatsoever.
What else is a lease renewal called?
A lease renewal can be called a few other names, including:
- Lease extension
- Option to renew
- Option to extend
- Lease renewal option
Lawyers point out that although lease renewal and lease extension are used interchangeably, there is a key difference, which is that a lease extension continues the existing lease agreement, while a lease renewal creates a new lease situation. Potentially, if a tenant or landlord wanted to argue it, a lease renewal might mean that any special offers or promos valid upon lease signing are owed to the tenants even if they’ve been in the unit for two years.
To really protect oneself when sending out lease renewal agreements, they should be accompanied by an entire new lease, and also the agreement should stipulate that no promotions or offers offered to new tenants apply.
Customizing a lease renewal offer template
Even though this is a brief form, it contains very important information such as the future rent amount and date to vacate. You should always cross-reference it against your original lease and existing records. Sometimes an outgoing tenant may ask to extend their lease pro-rated by just a short time to accommodate a move schedule, and in this case it’s up to the landlord whether to accept this and how much to charge. Usually a tenant will let you know this well in advance of the date they’re supposed to vacate.
If the tenant stays, a lease renewal is recommended
For independent landlords that don’t use a large property management company, collecting lease renewals can be a bit of a pain, just because it forces both parties to commit to each other for the next six months to a year or longer. It also is generally the time period when rent is negotiated – and this can be the stickiest conversation of all. However, a responsible landlord will make sure to send out lease renewals in plenty of time before a lease expires, because they want to avoid surprises and keep the rent coming in without pause.
Decided a lease renewal offer is right for you?
To see how this might look all laid out, here's a lease renewal offer template from our partners at Avail. Like all templates, this is only a starting point and probably needs some customization. As such, we strongly encourage you to contact a real estate lawyer if you have questions about this template and whether it is right for you.
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