Negotiating a Lease Renewal

When you’re renewing your tenant’s lease, there’s a lot to consider. If you have a tenant that pays rent on time and treats your place with respect, you may not want them to move out. But if they’re not your optimal tenant, the prospect of screening tenants and the potential for an unpaid vacancy can be stressful. Take a look at these great tips on how to negotiate a lease renewal. You’ll find helpful ideas and advice to help stay in control when negotiating.

How to Decide If Your Tenant Should Be Offered a Renewal

Determining if your current tenant’s going to pay off in the coming year is sometimes as easy as reviewing their past payment performance. When they’re paying the rent on time, it may be an easy decision. On the other hand, if the month’s rent has been consistently late in the past few months, there may be cause for concern. Take a look at these strategies for making the tough call on whether or not to negotiate and renew.

Know your legal constraints. Suppose you’ve got a tenant that has made a few missteps in the past, like disturbing neighbors or bouncing a month’s rent check now and then. Although it may be nice to find another more like-minded and financially-responsible tenant, it’s important that you’re building your case for non-renewal in a way that complies with the Fair Housing Act. Other lease renewal rules and laws may be on the books at the state or local level. Before taking any action, check with a real estate attorney to be sure you're in compliance with all laws and provisions active in your area.

Run another credit check. If your tenant’s been having trouble getting the rent payments to you on time, have a credit check performed. It may be the case that their credit’s been on the slide, and they no longer qualify as a candidate for tenancy. This could be a good time to seek a new tenant.

What to Know Before You Offer to Renew

One of the key ways to effectively negotiate a lease renewal is by doing your homework and firmly understanding the marketplace as it pertains to local availability, vacancy trends and pricing.

Get in front of your tenants early. Send a new lease for good tenants to sign 90 days in advance. If they’re looking to stay put, they’ll sign and renew without much fuss.

Look at nearby vacancy rates. Another key indicator to consider is how many units like yours are currently available locally. With the national vacancy average being around seven and a half percent, it’s important that you know where things stand. Check out the Census Bureau’s Housing Vacancies and Homeownership (Opens in a new tab) stats page for quarterly updates on national vacancy trends. If rates are edging higher, you may have trouble finding another tenant, and raising the rent may not be a realistic option. One suggestion to improve the odds is to make an offer to pay half a month’s rent when renewing with reliable tenants to persuade them to sign for another year when vacancy rates are high.

Determine the fair market value of the rental. Do a quick search on Craigslist and Zillow Rental based on the criteria that best matches your space, and be sure you’re looking in the same neighborhood or zip code. If rental prices are on a steep incline, and the going market rate is up from last year, it may be time to raise the rent when you offer your renewal.

Determine the length of the lease. Usually, leases are on a 12-month schedule. However, some tenants may request a shorter term or — if you’re lucky — a longer one. Some tenants may opt for a shorter lease due to their travel plans or school schedule. You often find short-term lease requests with college students.

Opting for a long-term lease. Others may prefer a longer lease in hopes of saving towards a house while also locking in a consistent rent rate. When reviewing non-standard lease terms, it’s important to consider the pros and cons of each situation. You may have the ability to increase the rent for a shorter lease and similarly, decrease rent for a longer lease if it means you won’t have to deal with vacancies or turnover for 36 months.

Incentivize with upgrades. Sweeten the deal when approaching good tenants by offering improvements, specifically if they’ve been making requests. Get them news of your intentions before you present them with a renewal lease. They’re going to see you care, and will be more likely to sign on for another year when they know upgrades are on the way. This strategy is also helpful when you’re considering a rent increase, too. Once the updates are completed, you can try offering a renters insurance discount if you're not currently requiring them to have it — that’s a win for all parties.

When it’s time to negotiate a lease for another 12 months, property management companies know that they can save money by working with existing tenants to renew by offering discounts, upgrades or even both. As a landlord, take a page out of that book when necessary and propose an attractive package for them so they’ll feel more comfortable signing for another term. While crafting your approach, remember to contact your American Family Insurance agent (Opens in a new tab) and be sure to explore the business insurance options available to you. Your rentals will be carefully insured and you’ll feel great knowing that your real estate is better protected from the unexpected.