If you own investment property, choosing whether to offer a rental lease renewal probably seems straight forward – if you have a good tenant then lock them in; if there’s been issues then let them go. But is it really that simple?
As a landlord, keeping quality tenants in your property not only maximises your rental returns, it increases the stability and security of your investment. Obviously, negotiating a lease renewal is ideal – however some tenants prefer to be on an expired lease. Also, prompting your tenants (e.g. by offering a lease renewal) can lead to them investigating other options.
So… if your tenant’s lease is about to expire, what should you do?
Know your options
Before you decide whether to offer your tenant a rental lease renewal, you need to make sure you understand your legal requirements. While neither you nor your tenant are obliged to renew, your rental tenancy agreement will outline the process for making any changes – like ending the tenancy early or increasing the rent.
Broadly speaking, once your initial lease has expired, you (and your tenant) have three main options:
- Renew the lease – this involves setting up a new agreement and effectively extends the term of the tenancy by a set amount of time.
- End the tenancy – this will require the tenant to move out and for you to find someone new to rent your property.
- Transition to week-by week – if you do nothing, your lease agreement will move to be an expired lease.
Benefits of a rental lease renewal
The main reason most landlords choose to renew is that it gives them a greater sense of certainty. It means that their property will continue to be tenanted and their rental income will not be impacted – in fact, they may be able to increase it.
Also, a renewed agreement provides more stability, at least for the lease period. For example, if you transition to a week-by-week arrangement and the lease expires, your tenant can move out at any time with providing at least 21 days’ notice (NSW). But, if you renew the lease and your tenant wants to move out early, they will be subject to a longer notification period and break lease fees.
A rental lease renewal also helps you avoid the costs associated with finding a new tenant – like advertising and re-leasing fees – and minimises the risk of having an unsuitable tenant (as you already know what your current tenant is like and how they look after your property).
The lease renewal process
If you are considering renewing, you should start by contacting your tenant before their current lease expires and discussing how they’re going and if they are interested in staying on. Many tenants are unaware of their lease expiry date, so may need a reminder and some time to consider their plans.
Once your tenant has decided they want to stay, you will need to agree the terms of the lease renewal agreement. These will usually be the same as the initial lease, but you may want to consider changing the period of the lease (e.g. if you have plans of renovating, you may want to end the lease before works start) or adjusting the rent (see our article on rent increases for more information). Also you will want to ensure the lease doesn’t expire during harder to lease months.
Reasons you may not want to renew
While a rental lease renewal has many positives, depending on your circumstances, transitioning to a week-by-week agreement may be more beneficial. For example, if you are considering selling your property, the flexibility of a weekly arrangement can allow you to list and sell at the best possible time. Having a rental tenancy agreement in place can also scare off potential buyers as owner occupiers will usually want to move into their new property straight away.
It’s also worth noting that, you can always renew the lease at a later date, if you and your tenant both agree to it. This means that if, when your initial agreement expires, either of you are unable to commit to a longer-term agreement, you can let the lease expire, then come to a lease renewal agreement when your circumstances allow it. That being said, we do not recommend repeatedly asking your tenants about their plans, as this can put them off renewing.
Reasons why a tenant may not want to renew
A tenant may have some uncertain factors in their life that may relate to work, relationship or family and unable to commit to a new lease. A tenant may prefer flexibility and keep their options open. In these instances, it doesn’t mean that the tenant is not enjoying your property, it may mean that they are unable to decide based on their current circumstances. Sometimes a tenant can go years on an expired lease.
Want more information?
If you’re wondering whether to offer your tenant(s) a rental lease renewal, we recommend speaking to your property manager. Their advice should take into account your situation and investment goals, the state of the local rental market, and the tenant’s plans. They should also be able to provide a recommendation for any adjustment to the rent.
If you’re not a Local Agency Co. client, but would like a second opinion on whether to renew your lease agreement – or more information on our property management service – contact us via 1300 258 888 or via firstname.lastname@example.org. We have over 18 years of experience, specialise in leasing and property management, and are always happy to answer questions and offer advice.