Tenant requesting 5 year lease. How should I structure rent?

Question

My tenant is requesting a 5 year lease. I was originally going to increase rent by 3% per year.  Because they want to sign for 5 years, which will reduce vacancy costs, I should probably reduce the annual rent increases but I have no rule of thumb to go by.  Please share some wisdom. Thanks.

Kyle J. · Answer

I wouldn’t sign a lease that long with a tenant and I certainly wouldn’t reduce the annual rent increases for that long. Why lock yourself into lower rent for such a long period of time? Tenants will leave whenever they want, regardless of a lease, so there’s no guarantee that your vacancy costs will be reduced. All you’re really doing is guaranteeing lower rent. Frankly I don’t see much advantage for you to do this, and I think most landlords would recommend against it.

Kyle J. · Answer

Actually you have that backwards.  Absent language in the lease to the contrary, in almost every state the lease survives the sale and has to be honored by the new owner.

Greg M. · Answer

Even in California I can find a judge that will enforce the legal terms  of a legal contract! Early termination fees in contracts are not unusual  and the ones I proposed are a small percentage of the remaining annual  contract value. A judge would understand that the tenant requested the long  term contract in order to procure long term security and stable rates  and could have easily signed a shorter lease without these conditions.   I get the feeling that 90% of the people on these forums have never  actually gone to court or tried to collect a judgment and just say to give up. Perhaps if you have rentals in D areas it  may not be worth it to try and collect, but in most areas you'd be  stupid not to try.   Here is the horrible process for a landlord to collect from a non-paying tenant.

• File suit online and have defendant served through the court system. 10 minutes of your time.
• Go to court and get a judgment. Usually takes a few hours.
• Wait until time for appeal has expired.
• Turn judgment which includes court fees over to a collections  attorney/agency on a contingency basis. They take 25%-50% of whatever  they collect. 20 minutes of your time.
• Sit back and wait for payment to come in. It might be tomorrow or 10  years from now. You never know when bank accounts get levied, wages get  garnished, and depending on the amount and the aggressiveness of the  person collecting, maybe a lien gets placed on their car?

Thomas S. · Answer

Asking for a 5 year lease is like saying to a landlord "I am a problem tenant". Good tenants do not need a lease at all and are more than happy with M2M.

Without knowing any more info I can say that I would not offer them anything but a M2M and hope they run.

Most tenants stay on average 1-3 years, this one will be no different. He will break a 5 year lease guaranteed. In the interim he will likely be a royal pain, you will be losing money and you will not be able to get rid of him.

Landlords that think a term lease reduces vacancies are laughable. They give tenants a break on their rent thinking they have some form of guaranteed tennat and end up getting scre*ed by the tenant when they break the lease.

It's a tenant that is smarter than your average landlord.

Colleen F. · Answer

The lease locks you in NOT them.  they can walk away any time and you have a duty to mitigate your damages. No judge is going to uphold a long term lease for you but if you promised the unit at a certain amount to  the tenant the judge likely will uphold that rate for them.

Do what @Michele Fischer  said. don't lock yourself in long term and if you want to or have to sell you can.  If they are a bad tenant it is easier to part ways.

Amanda Wirch · Answer

The downside I could see is that they may not be spectacular renters, and then you are locked into annoying, needy, or difficult to manage renters for 5 years.  Even solid people can be annoying renters -- poor cleanliness over the course of a year is frustrating, over 5 years it could turn into hoarding, health hazard, or damage to your property.

Michele Fischer · Answer

When we have an applicant who wants to have a term longer than we offer, we explain that they are welcome to stay as long as they want if they follow the rules and pay rent, and we explain that we aren't planning to sell and our policy to keep rent below market for solid tenants (we increase to 50% of the gap between market and curent rent annually).  I agree with other feedback; it is a red flag for me when they want a long term.  They may tell you one reason but really want it for a different reason, like taking you on a frustrating five year ride.  It makes it more difficult for you to end a contract with a marginal tenant, sell the property, or get closer to market rent, so why would you lock youself in.

Matthew Paul · Answer

Tenant ....  How much of a discount will you give me if I sign for 5 years ?

Landlord ...... $ 100 a month

a year and a half down the road ................

tenant .............  I am moving heres my 60 days notice .

Landlord loses money

Greg M. · Answer

Personally I would never do a 5 year lease. I like one year and have  done the occasional two year upon renewal of a good tenant. As others  have pointed out, the lease protects the tenant from rent increases, but  does not protect you from them leaving and you needing to find another  tenant.  If you insist on giving them a long term lease, absolutely put in an early terminate fee. Something like:

• If lease is terminated during year 5, a fee equal to one months rent.
• If lease is terminated during year 4, a fee equal to two months rent.
• If lease is terminated during year 3, a fee equal to three months rent.
• If lease is terminated during year 1 or 2, a fee equal to four months rent.

Tenant requesting 5 year lease. How should I structure rent?

Most Popular Reply