Not offering a lease renewal. How should I do it?

Question

I am newbie in the real state investing world so any help is appreciated.

I bought a duplex in a working class neighborhood in Knoxville, TN. The duplex already had tenants but I want to update/remodel ONLY one unit to increase rent and to  attract a family instead of two roommates.  The current lease does not mention anything about renewing the lease. Based on what I read, I should send them a letter stating that I will not renew the lease 30 to 60 days before the lease expiration date.

Is there anything else I need to do? Also, you do have a letter/template that I can use?

John Teachout · Answer

If the property is already occupied and cash flowing, why rock the boat? If it's rented under market, raise the rent. You can't generally can't discriminate as to who occupies the unit so don't say things like exchanging "roommates" for "families" lest you run afoul of fair housing laws. Save your renovation $$ and do the reno during a property turnover.

Patricia Steiner · Answer

In your state, 30 days notice of non-renewal is needed. The landlord does not need to give any explanation for non-renewal.  Here's a good overview of your landlord-tenant laws:

https://www.avail.co/education/laws/tennessee-landlord-tenant-laws

The Notice To Vacate is what most PM use in Tennessee when the lease will not be renewed at term - and for other reasons.  The form can be found on the internet and from several free sources:

http://www.simplifyem.com/forms/tennessee-notice-to-vacateI recommend not sharing with your current tenants and/or in any advertising that you are seeking families as future tenants to avoid Fair Housing issues as well as being legally challenged on the evolving definition of "family."

Congrats on acquiring your duplex...

Bjorn Ahlblad · Answer

@Juan Arroyo Welcome to BP! I would recommend joining your State LL Association. For 50-60 dollars a year they will provide forms, leases, legal support, networking etc.-in short everything you need. Combined with BP you will be all set!

Theresa Harris · Answer

Check your local laws about how much notice you need to give.  I'd do 60 days to give them time to find a new place.  Let them know you want to do renos to the place that require it being vacant.  If they are good tenants, you can always tell them that they can re-rent the place once it is completed, but the rent will be higher.

Matt Castle · Answer

Absolutely. That's part of all leases. Basic cleanliness is a requirement, but for it to hold up, you probably need to warn them in writing at least once for this to hold up unless it's blatantly egregious.

As was mentioned earlier, the more you say, the more can be used against you, so best not to say much if anything at all.

Alternatively, you may simply want to inform them that you're raising the rent b/c, as the new owner, that's what you feel it's worth. If they stay, you get >$ and no rehab. If not, you've accomplished your goal of vacating the unit for rehab.

Frank Geiger · Answer

Have to agree with @John Teachout. If the tenants pay rent on time and the numbers are working out, let them move out on their own before performing upgrades. Typically, roommates only stay together for a few years anyways. Unless your rents are super below market.

Juan Arroyo · Answer

Thank you very much to all of you!

Rob B. · Answer

@Juan Arroyo - great question, and @Patricia Steiner has the right idea!

In Tennessee, if a tenant wants to renew the lease, he or she must notify the landlord in writing at least 30 days before the expiration of this lease. A lease renewal provision in Tennessee contains the following language:

“LESSEE shall notify LESSOR in writing at least thirty (30) days prior to the expiration of this Lease of LESSEE’s intent to renew or not to renew this Lease. If LESSEE fails to give notice as provided in this paragraph, or if LESSEE continues occupancy of the premises after expiration of this Lease, but without executing a new lease, then a new tenancy from month-to-month shall be created and the rental rate shall be adjusted to the sum of ($) Dollars per month.”

Kenny Dahill · Answer

@Juan Arroyo,

Before asking the tenants to move-out, your best financial strategy is often keeping the same tenant but raising rates.  You will minimize vacancy loss and cash to renovate.  Even if it rents below market, often times it provides you the luxury of being a better investment to keep the same tenant.

As for the girlfriend, since they are on a month-to-month lease then you need to have her submit an application, screen and get her on the lease.  Pronto.  This can be handled by a lease amendment.

JD Martin · Answer

Thoughts:

1. The longer you are a landlord, the more you will realize that your definition of "clean" may be vastly different from the tenant's definition. So long as tenants are not damaging the property, drawing vermin, or causing trouble with the city/neighbors, a lot of times you have to just accept that different people live different ways. Both my wife and I would consider many of our tenant's homes sloppy pigpens, but after plenty of years and tenants you learn it goes with the territory.

2. Unless you are living in the other side of the duplex, don't try to advertise wanting a specific kind of tenant. You are bound to cause yourself problems. There are loopholes in the Fair Housing Act that allows you to "discriminate", but you really don't want to test those things unless necessary.

3. In TN (like me), if you don't have an automatic renewal clause in your lease (most leases do, even if it's month to month), the end of the lease is considered the end of the tenancy and sufficiently noticed. So if they are there the day after they are squatting. That said, it would be obnoxious to not let them know you don't plan on renewing their lease (if that's the case), so I would give them at least 30 days. Easier: raise the rent if you prefer not to have these tenants, if they're not damaging the property or otherwise causing problems. Then you can collect what you want from the property without changing tenants and forcing them to move. If they decide to move because of the raised rent, problem solved.

Not offering a lease renewal. How should I do it?

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