Lease renewals are deceptively difficult. It’s something that can be easy to not give much thought but has long-term trickle down effects to not just your cashflow but your ability to easily navigate an eviction or tenant disputes.
IN THIS EPISODE, YOU’LL LEARN:
- Why I don’t like letting leases lapse into month to month
- When to use a lease addendum vs new lease
- Legal landmines surrounding long-term tenancies
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Resources mentioned in this episode:
📲 Click here to download my free legal checklist for landlords
🎧 If you have a turnover instead of a renewal, give episode 68 a listen to learn my top 7 Things Landlords Should Never Do During Tenant Turnover (and what to do instead).
Why I don’t like letting leases lapse into month to month
I often see leases convert to month-to-month automatically at the end of the lease when it’s really in the landlord’s benefit to renew annually or not at all.
Landlords Lose Control With Month to Month Leases
When a tenant can terminate a lease a 30 days notice (which is no time at all!), Landlords can be stuck with turnovers an undesirable times of the year. Nobody wants a February turnover in the northern hemisphere.
As someone who self manages their rentals, clustering turnovers to one times allows us to find economies of scales for cleaning, painting, and other repairs that may otherwise be more expensive when taken as a one off.
Situation Where Month to Month Lease may be Beneficial for Landlords
If you plan to sell a tenant occupied property during the next lease term length and wanting the possibility of removing a tenant a month’s notice, then I can see the value of taking on some of the risk that tenant will leave on their terms and not yours.
NOTE: Of course, check your state landlord-tenant laws to see if there are any restrictions around automatic renewals. New Jersey is a notorious outlier around residential renewals.
When to use a lease addendum vs. signing a new lease
Landlords Should Use Addendums to Leases for Small changes or Mid-Lease updates.
If a landlord simply needs to make one or two changes to a lease, like a change in the rent amount, then an addendum would suffice. Addendums also work well for mid-lease changes, like the addition of a pet mid-lease term.
When Substantial or Several Changes to Lease Terms are Made, Landlords Should Sign a New Lease
If several changes to the lease are being made, like rent amount, roommates, co-signors, utility handling, security deposit, etc., then it’s cleanest to sign a new lease. When in doubt, signing a whole new lease is the way to go.
Legal landmines surrounding long-term tenancies
Many states have laws around giving tenants interest on their security deposit after the 1 year mark or even partially returning the security deposit. Make sure your internal processes take these important laws into account because violations often come with stiff penalties.
You also don’t want to get in the habit of skipping rent increases. Want to know how landlords end up so far under market rent? Not thinking any increase wasn’t a big deal *just this one year.* $50-$75 hear and then add up to be $100s of dollars under market in just a few years time.
Finally, don’t take the ostrich approach to property management. Continue to check in, walk the property, and make sure you keep an open line of communication with your tenants. Don’t make the mistake of assuming no news is good news. Trust but verify.
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