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

[Lisa Gallagher]

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!