How To Approach Tenant About Lease Renewal

Question

Hello everyone,

I have purchased my first 3-family investment just a little over a month ago and the current lease on my 4-bedroom unit will be ending on June 30, so the tenant has one more month of official occupancy.

This being my first, I'm a little unsure on how to approach the tenant and ask whether they will be renewing, or if they will be moving out.  When I first talked to them, they said they would like to stay (they think).  I would like to address this, this weekend, as if they will be moving out, it would give me time to prepare for a new tenant.

So my question is, should I just casually approach them and talk to them about whether they want to renew and stay, or is there an official form I should drop in their mailbox.

If they do renew, should I seek 6 month, 12 month?  What is the standard?

As I said, it's a large 4 bedroom unit, with a family and two brothers living there.  They are nice people that actually help me around the yard, bring flowers for the front of the house etc.  I would like them to stay, but obviously I can't make them.

That leads to, if they do stay, should I risk raising their rent a few dollars, or just keeping it the same for the next contract?  Currently, they are paying $1,325 and I pay for water.  Should I be firm with a $20-40 increase, or let them slide, till I become more comfortable over the next year?

Thanks in advance!

Konrad

Steve Babiak · Answer

I do something similar to what @Nicole W. wrote, but if I want them to stay I don't put option 3 as vacate - I want them thinking stay not go! My option 1 would be month to month with the lease's rent escalator kicking in, so 8% increase for this option. My option 2 would be renew for another year, with smaller or no increase. My option 3 (not always offered), when offered, is to give the tenant something they want and have asked for in the past, but with a bigger rent increase than option 2.  If they aren't asking for some feature, I skip option 3 ...

And this is always in writing.

Frank Woodin · Answer

I agree with all of the above of what everyone one posted.  I would also add that you might want to look at when your "new" lease will end if they sign a new lease.  I made the mistake a while ago of having one expire in November and it took until February to fill it. So instead of putting myself in that problem again  I now will make a 15 month or 16 month lease to get me back to an April move out date because the weather is better and people are more likely to move then.  Since you are in Connecticut this might be an idea, since I am in Illinois this seems to work really well.

Brad M. · Answer

I do exactly what @Max Tanenbaum does. My leases require 60 day notice of intent to renew, otherwise it automatically renews for another year. I don't want to send them a reminder and get them thinking that maybe they should look around. They have the lease, know (or should know) the terms, and if they intend to move they'll let me know. Of course, as Max said, if i intend to raise the rent, or make any other changes, I let them know in advance of the 60 days as well.

As far as 6 mos or 1 year leases, it depends on your market. I also do 12 months. I also rent in a fairly dense student area, so I try to align all of my leases to expire in May or June, as that is the most active time for students to move around.

Nicole A. · Answer

Does your lease actually end at the "end date" or does it state that it automatically goes month-to-month after the original term?Since tenants should give 30 day notice that they intend to move (at least in Maryland), I approach them 60 days before the end of the lease.

I send a letter reminding them of the end of the lease and offer three options. I ask them to check their option of choice, sign the letter, and mail back to me no later than X Date, which would be 30 days before end of lease.

Option 1--Do nothing and let the lease go month-to-month.

Option 2-- Renew lease for another year. No rent increase (because the numbers work). An incentive such as a small upgrade or $75-100 off the first month of the new lease rent.

Option 3--Notify us that they intend to vacate no later than the end date listed on the lease. Choosing this option, signing, and sending back to me would suffice as their notice.

So far, I've had 2 of my tenants choose option 2! :-) I just sent another out to a 3rd and 4th tenant, hoping they have similar responses.

Lou Castillo · Answer

These are great questions. As far as whether you should raise the rent or not...do some market research. What are similar type homes in your area going for? In other words, would your tenant have better options? Remember, it is expensive and inconvenient for them to move...so they will only do that for good reason.

By the same token, if you raise rents and then are going to be well over market, you could lose your tenant and that is always costly. So know your market.

Give tenants a reason to want to stay. What kind of a landlord have you been all year? Do you take good care of the property? Do you perform preventative maintenance? Do you respond quickly to their concerns? If you have been a good landlord, they are more willing to want to stay. Have you contacted them through the year just to see if they are satisfied?

So first thing is that I like to start 45-60 days before lease renewal I congratulate them on coming up on an anniversary. I tell them what great tenants they have been and that I would love to have them stay for another year. Then offer some sort of inducement - that also improves the property.

For instance, maybe it is time to change out the vinyl floors; or paint the interior; or change the carpet. Maybe you want to install ceiling fans in more rooms. You could upgrade appliances. It also helps if you have been listening to the tenant throughout the year...they may have had a recurring problem that you now just replace that item altogether.

When you provide a great home for tenants at a fair price, they do not want to leave unless their life changes. You can raise the rent and ask them to renew the lease without fear. If you have been a good landlord and you are priced competitively and they still move out  - it wasn't because you went up a few dollars. Something else changed in their life!

Aj Parikh · Answer

Your lease should mention lease renewal guidelines. Usually the tenant has to be notified 45-60 days before end of lease if they will be renewing. If they haven't said anything, its most likely they will be staying. But I would still give them a call or email them asking about their plans. You don't have to feel bad about this because its part of managing a rental property.

Usually 3% increase in rent is common but if you are comfortable with the price point then I wouldn't bother much. Finding a good tenant is priceless.

Dan L. · Answer

I know this is 6 years too late lol But I figured I might as well add this in case a future new landlord looks at this. For a million reasons this landlord should not buy a used playground from Craigslist for his tenants!  Here's a few...

Oh the liability!

• First off it is used, so even if it has a serious defect, you can't even blame the manufacturer (easily).
• 
• Second, if a tenant gets hurt on this, the landlord is going to be liable. I would just make sure you tell your insurance company that you were thinking about doing this, and see what they say! Make sure you have at least a million dollars in coverage. 
• 
• Third, he has only owned the property for a month.  Yes you should focus on health and safety concerns, and some cosmetic concerns, but if you are already at the stage where you are looking to spoil your tenants like this, the tenants will get spoiled fast. Good luck with that!
• 
• And lastly, it sounds like this is the OP’s first investment property. 1 month later, and if you have surplus time and money to look for ways to improve your tenants’ life, you need to focus more on acquiring properties and funding, less on how to make your tenants' lives better.

I might get some hate for saying this all, but I just want any future new landlord to really think twice about what they are giving their tenants.

Nicole A. · Answer

@Konrad L.

This is just something I drafted up myself in a professional format and manner. I'm sure it could become a legal document if for some reason you and the Tenant ended up in court over something regarding that form. That's why you always get things in writing...because you never know when you need to show proof of something someone said or signed.

Michael Noto · Answer

Most tenants don't even realize that their leases revert to a month to month @Konrad L.

I have properties in Plainville, Bristol, New Britain, and Southington.

Konrad L. · Answer

@Nicole W.

@Steve Babiak  Is there a standard form you guys use for renewals with such options and 'check boxes' for the tenants to sign, or is this something you have drafted yourselves?  Is this considered an important legal doc, or just a gateway to signing a contract, which they would supersede the renewal option doc?

How To Approach Tenant About Lease Renewal

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