There’s a saying in real estate that good tenants are like gold. Great tenants can be hard to find, and some landlords will do everything they can to avoid seeing a good tenant go.
Sending a tenant a lease renewal is an important part of owning and operating a rental property. Before the existing lease comes to an end, a lease renewal is sent to a tenant to outline any changes and to offer a tenant the opportunity to sign a new lease.
In this article, we’ll explain what to consider before renewing a lease, how to write a new renewal letter, and where to find free templates for a lease renewal and residential lease agreements.
- A landlord generally does not have to renew a lease, although there may be some exceptions due to local landlord-tenant laws.
- Factors to consider before renewing a lease include determining the current fair market rent and the terms and conditions of the new lease.
- A lease renewal eliminates the time and expense of finding a new tenant, and vacancy and lost rental income due to tenant turnover.
- A lease renewal letter is generally sent to a tenant 90 days before the expiration date of the current lease.
- If a tenant agrees to renew the lease, a new lease agreement is drawn up and signed.
- If a landlord or tenant does not want to renew, a non-renewal lease letter is sent to a tenant.
Does a landlord have to renew a lease?
Local and state landlord-tenant laws in areas with rent control may restrict how landlords can end tenancies.
However, as the legal resource website Nolo.com explains, even if a property is located in a rent-controlled area, single-family rental homes and owner-occupied buildings with 4 units or less are commonly exempt from rent control laws.
To better understand the law, landlords may wish to consult with their property manager or real estate attorney before deciding whether or not to renew a lease.
Factors to consider before renewing a lease
In addition to reviewing the local landlord-tenant laws, there are several factors landlords consider before renewing a lease with the existing tenant:
Because market conditions may have changed since the time the tenant signed their lease, the first step in a lease renewal is to determine if the tenant is paying a fair market rent.
As the business intelligence firm CoreLogic recently reported, single-family rents recently hit a 16.5-year high, and are up 8.5% year-over-year (as of July 2021). There are also some places in the U.S. where rents have decreased over the past year. According to Apartment Guide, cities such as Philadelphia and Saint Louis have seen rents decline over the past 12 months.
Three online resources for running rent comparables to determine the current fair market rent are:
- Stessa Rent Estimate is an optional, premium service for Stessa users. The service identifies opportunities to increase cash flow by determining a fair asking rent based on current listings, rent comparables, and market trends.
- Rentometer to help decide if a landlord is charging too much or too little.
- Zillow Rent Zestimate to determine a starting price point for rent.
Related: Looking for an easier way to collect rent from your tenants? Check out Stessa rent collection – a free tool that makes it easy for tenants to pay on time, and automate key tasks like deposits, receipts, and accounting. Get notified when a payment is made and when it’s been deposited in your account.
As a rule of thumb, a landlord generally sends a lease renewal to a tenant 90 days before the existing lease is due to end. For example, if the lease expiration date is April 30th, the lease renewal should be received by the tenant on February 1st.
Three months minimizes the amount of time the market rent may change, and also provides a tenant with a fair amount of time to decide what they want to do, without feeling like they are being rushed by the landlord to make a decision.
A lease renewal should include a deadline for the tenant to respond if they do or do not want to renew the lease with the new terms and conditions outlined in the lease renewal notice. For example, if a tenant doesn’t agree to a lease renewal within 30 days, a landlord still has 60 days to list the property for rent and screen prospective tenants.
Landlords generally renew a lease for the same length of time as the original lease. If the original lease was 12 months, the lease renewal might also be for another 12-month period.
However, in most cases landlords can choose how long they want to renew the lease.
For example, if rents are rapidly rising a landlord may wish to offer a tenant a shorter lease such as 6 months or month-to-month. On the other hand, if a landlord believes the rents in the market will begin to decline, it might make more sense to offer a tenant a 12-month lease term.
Last but not least, landlords consider whether or not they want to keep current tenants. If the current tenant is taking good care of the property and paying the rent on time, then keeping the tenant may be the right choice. By renewing the lease, a landlord can avoid the cost of marketing and screening, and avoid losing rental income due to the home being vacant.
Lease renewal pros and cons
Here’s a quick summary of the pros and cons of offering a lease renewal to a current tenant:
Pros of a lease renewal
- It’s the path of least resistance.
- The current tenant already knows the property, the existing lease terms and conditions, and the expectations of the landlord or property manager.
- It saves time and money by not having to find a new tenant.
- It eliminates vacancy and lost rental income due to tenant turnover.
- It helps to reduce the risk of leasing to a bad tenant, which can occur even with the best tenant screening.
Cons of a lease renewal
- The landlord may not want to keep an existing tenant, such as when a tenant consistently pays the rent late or repeatedly damages the property.
- Landlord-tenant laws may limit how much of a rental increase can be given to an existing tenant.
- The tenant may not agree to the terms of the lease renewal, or want to negotiate renewal conditions with the landlord.
- Having the property vacant for a short period of time provides a landlord with the opportunity to perform updating and rehabbing that may justify a higher rent.
What to include in a lease renewal letter
A lease renewal letter contains the following details:
- Date of the lease renewal letter.
- Name and information of tenant and landlord.
- Property address and unit number (if applicable).
- Reference expiration date of the existing lease.
- Rent amount of the new lease.
- Term of the new lease (such as renewing for another 12 months).
- Deadline for tenant to respond to the lease renewal letter.
Sample lease renewal letter
Here’s an example of a basic lease renewal letter for landlords to use:
Lease Renewal Notice Letter
Tenant Name ___________________________________________
City, State, Zip Code ______________________________________
Dear (names of all tenants on the lease),
Your existing lease with an original start date of ___________ will expire on __________. At this time, I am offering to renew your lease for _________ month(s) at $ _________ per month.
Please reply by _____________________ if you would like to renew your lease, and we will arrange a time to sign the lease renewal.
Landlord Name ________________________________________
Landlord Signature _____________________________________
City, State, Zip Code ____________________________________
Phone Number ________________________________________
Some landlords choose to mail or email the lease renewal letter, while others like to deliver a lease renewal in person to answer any questions a tenant might have (after giving the tenant proper notice before coming by).
As a standard business practice, a landlord will keep a copy of the notice in the tenant file along with a notation of how the lease renewal letter was delivered.
How to renew a lease
If a tenant agrees to the terms and conditions outlined in the lease renewal letter, the next step is to draw up a new lease and arrange for the tenant and landlord to sign. Before the new lease is signed, a landlord or tenant sometimes agree to negotiate on items such as:
- An increase in the security deposit (depending on local landlord-tenant laws).
- How to pay the rent going forward (such as an online rent payment system).
- Requiring the tenant to obtain renters insurance if they do not currently have a policy.
- Changes to other lease terms and conditions like having a roommate or a pet.
If a tenant does not want to renew the lease, or does not reply by the deadline date, a landlord will send a tenant a form notice that the lease will not be renewed.
A non-renewal lease letter provides documentation that a tenant was formally offered the opportunity to renew the lease and declined to do so. A non-renewal lease letter can also be used to notify a tenant that a landlord does not wish to renew a lease with an existing tenant.
Where to find residential lease templates
A local property manager or real estate attorney are two good resources for obtaining residential lease templates such as a lease renewal notice, a non-renewal lease letter, and the most recent version of a residential lease agreement for the city and state the rental property is located in.
Some online resources for finding residential lease templates include: