Once the initial lease term is a couple months away from expiring, you may wonder whether you should renew the lease with your tenants and if so, how to go about it. We’ll review the steps and pros and cons of not renewing below.

Do you have to renew the lease?

Many people think there’s no lease in place once the original lease expires but not necessarily. Many leases will default to month-to-month after the initial term. If you do nothing, then the original lease with the same terms may remain in place except there’s no set expiration date.

Do you want to renew?

Even if you have good tenants who pay rent on time and are taking care of the property, you may not want to renew the lease. Maybe you’re thinking about selling, moving back, or having a friend or family member move in. If you renew the lease with your tenants, selling (the lease follows the property so you’ll be selling with the tenants and lease in place) or moving back will become a lot more difficult since they’ll need to agree to end the lease early if you renew. If you’re sure you want to renew, what’s next?

Reach out to see if the tenants want to renew.

Maybe they do but not at the proposed rent increase or term you want. The possible outcomes are 1) they renew at any new terms (rent increase) and length of time you want (usually a year but not always and doesn’t have to be), 2) ask for different terms, or 3) let you know they’re moving out.

It’s very important that their notice to move out is in writing. If they tell you verbally that they plan to move, then you should ask them to put it in writing. If they don’t put it in writing and you sign a lease with new tenants based on what they told you verbally and your current tenants don’t move out, then you may be in a situation where you have two leases at the same time and may have to pay penalties to the new tenants you signed a lease with for not being able to deliver the property on-time.

What happens if tenants say they want to renew but don’t sign?

If they really want to renew, then they’ll sign the new lease or extension. If they’re considering other options and are unsure, they may tell you they want to renew but drag their feet on signing which is a red flag. You should never count on them renewing, regardless of what they say, until the paperwork is signed. Once you receive the lease renewal back signed by them, then you should also sign, and everyone should get a copy with both signatures.

What happens if tenants don’t answer or keep changing their minds?

Maybe they say they do one day but aren’t sure the next. At a certain point, you need to decide if you want to be in a situation where they unexpectedly end up moving out at the last minute or if you want to give them notice that you’re no longer offering to renew the lease and that they need to move out when the current lease expires. That’s not a guarantee that they will move out but if they stay after the lease expires, they’re considered a holdover tenant and your lease may have a clause that increases the rent a certain amount and you also have grounds to start evicting them. Typically, if they want to stay and you give them notice to move, they will follow through and sign the renewal.

Roommate changes

Lease renewals are also a time where maybe one person moves and another stays and maybe gets a new roommate. If that happens, you should process new applications on any new and sometimes your remaining tenants to make sure everyone is qualified and can afford to pay the rent.

Renewing leases with your tenants is something that professional property management companies handle every day. Give us a call to find out how what percentage of our tenants renew and our renewal process.