Would you let a tenant stay until they can obtain a mortgage?

Question

How would you handle a tenant (single family home) with a lease expiring on July 31, 2013 that wants to stay indefinitely?

Background
A month ago we informed them that we will be increasing the rent as of August 1st with the renewal. They have decided they don’t want to renew the lease because of the new rental amount but have asked us to “work with them” as they try to obtain a mortgage and allow them to remain in the house as long as that takes. Knowing what their credit score was three years ago, it could be a long process to obtain the mortgage, find a house and then close on a house.

Having never been in this situation before (and willing to work with them but also knowing that it could be hard to find other tenants in January if this stretches out 6 months or more), below is the letter we are thinking about sending. Would you do things any differently? Any pitfalls we should look out for?

We have also contemplated telling them that if they take the one year lease term and close on a house sooner than that, we would let them out of the lease once we find new tenants. Is that a good or a bad idea for landlords? At times they have been very difficult tenants, however, we want to be supportive of them but smart with our rental property at the same time. Thoughts? If it makes any difference, the rental property is in Virginia.

Here’s our proposal to them:

Dear Tenant,

The term of your current lease will expire, July 31, 2013 at 11:59 o’clock pm. We understand that you are trying to obtain a mortgage and are in need of some flexibility. To try to help you out, we are willing to offer several different lease terms. Please choose the lease term that would best fit your situation:

1. Month to Month Term – $2,100/month

This would extend your lease on a monthly basis with no set termination date. If you decide to cancel your lease at any time, just give us30 days’ notice and the lease will terminate. All leases terminate at the end of a calendar month.

2. Six Month Lease Term – $2,050/month

This is a shorter term lease than our normal one year term, and allows for you to plan a future move into a new home or another rental property.

3. One Year Lease Term – $1,950/month

Please choose one of the above options and let us know your choice by responding to this email within 10 days.

Thanks everyone for your input!

Elizabeth Colegrove · Answer

Honestly I would be nervous about someone who wouldnt renew because the rent was to high BUT wanted to stay indefinetly. I honestly would assume they were just trying to get around a rent increase. They would have 3 choices 1) more out at the end of the lease 2) m-m lease $200 aboved the rent increased 3) lease @ rent increase.

I totally believe in Karma and being nice. I also agree beleieve that business is business. The only person who cares about your position is you! Therefore

Ryan M. · Answer

If I got nervous for every time a tenant said they were moving, I wouldn't get much sleep.

However, most don't actually materialize.

Ali Boone · Answer

I like your approach but not sure the difference in monthly payments is enough to sway one way or the other. Offering a lease option is an excellent way to deal if you wanted to do that. I like the part about offering them an out once you have new tenants.

Only other mega expense would be fixing up the house, so if it's in great shape that expense would be low. But if it will cost a lot, be sure to factor that in to how much you want to charge for a month to month.

Shera Gregory · Answer

I was in a similar situation once and we added that a move-out between November 1 and Feb 28 would require an additional half month rent unless we were able to rent immediately. I would also ask for more than 30 days notice and ask that they work with you to allow you to show the home to prospective renters in the last month they are there. We have had good success with quick turnarounds under those circumstances.

John Rubino · Answer

Are you interested in offering them a Lease with the option to buy

Jon Holdman · Answer

I only do month to month anyway, so this would be a no brainer for me. I'd just reiterate the 30 day notice requirement (30 days before end of the month when they're moving out, not 30 days at any time) and tell them to let me know when they're leaving. But lots of companies do use the higher-rent-for-shorter-term strategy.

I'd add a fourth option - terminate the lease at the end of July. That makes it clear they have these four choices, no others.

Would you let a tenant stay until they can obtain a mortgage?

6 Replies