Should I offer a renewal of lease for my rental property?

A common question on property investors minds is that their rental property’s lease may be coming up for renewal soon and what should they do? 

You may be concerned that you want to avoid having a property vacant or becoming vacant at an unsuitable time of the year or that you want security, knowing a tenant will be in the property for a period of time. 

  • Firstly there is no obligation for either a tenant or investor to renew a lease.
  • The first step is to make contact with the tenant prior to the lease expiring and see how they are going and if they would consider staying on in the property and signing a new lease.
  • Our property managers report that a lot of tenants don’t even realise that their lease is due to expire. The flip side of asking tenants about their intentions leading up to the expiry of the lease, is that it plants a seed for a possible move or renogotiate a lower rent.
  • If the tenant wants to sign a lease, that’s great, just ensure that the lease expires at a time of the year that there are more people out inspecting rental properties, like January, February, March, April, August, September, October and November.
  • Whether you increase the rent will be determined on a number of other factors, please refer to our blog on My tenant has been paying the same rent for a while shall I increase the rent?
  • Also please be mindful of any future plans to sell the property, having a lease expiring sometime in the future will deter some buyers, it is dependent on the market and which buyers are more active. In the current selling market, we are finding a higher number of owner occupiers are purchasing properties rather than investors. For example, if you had a lease expiring in 6 months and you were trying to sell a property then most owner occupiers would not consider your property.
  • It is common that tenants don’t want to sign a new lease as they prefer to stay on an expired lease. Some reasons that tenants don’t want to sign a new lease is that they want flexibility and to keep their options open. Sometimes they may not be able to commit to a new lease as they may have some unknown factors in their life that may relate to work, relationships or family. In these instances it doesn’t mean that the tenant is not enjoying your investment property, it could mean that they are unable to make a decision based on their circumstances.
  • Our property managers advice is not to constantly ask the tenant their intentions, if they haven’t responded back, it is likely they are still considering their options or are unable to make a decision at this point of time. If you continue to follow up then you may push the tenant out of the property.

So if the tenant is undecided or can’t commit to a lease renewal, the options for a property investor is to give the tenant notice to move out and find a new tenant, however this will have associated costs like advertising, loss of income between tenants, mortgage payments, re leasing fees and maybe you need to make some improvements to lease the property.

You could just accept the tenants position and not pursue a lease renewal agreement.

Our property managers report that a high percentage of our property investors don’t want us to approach the tenants and ask them their intentions, as mentioned earlier this can prompt a tenant to explore their options and if the rental market has an oversupply of properties then this could see the tenant move or see the tenant want to negotiate a lower rent.

Talk to your property manager to discuss what’s best for you in your situation.

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