What You Should Consider Before Renewing Your Tenant's Lease

Renewing a tenant’s lease can be great for you, your property manager, and your wallet. In this blog, we’ll review the benefits of a lease renewal and why you might choose not to renew a lease.

Property owners often have many questions about lease renewals. When should they ask their tenants to renew? Should they raise the rent, and by how much? Renewing a tenant’s lease can save you a lot of money and time. You won’t have to spend money on vacancy costs or waste time marketing your property.

Sometimes you might not want your tenant to renew, especially if you have issues with them paying rent on time. In this article, we’ll go over everything you’d want to know about renewing a lease and what is involved in the process.

Benefits to Renewing a Lease

Renewing the lease with your current tenants has a number of benefits. For one, you won’t have to worry about finding a new tenant. Whether you have a property manager or are managing the home yourself, replacing a tenant can be a time consuming process, especially depending on the time of year.

This is especially beneficial if you have a great tenant. It’s reassuring to know that you’re able to keep the tenant that pays on time and takes care of your home. When you have to replace them, you run the risk of getting someone that might not be so courteous.

Current tenants will also know the rules of the community and your home. If you have plants that are watered by your tenants, you won’t have to worry about enforcing that with new tenants. If the property is part of an HOA or other community, you won’t have to inform the tenants of these rules or obligations. 

Another major factor in lease renewals is the cost. Vacancies can cost an owner anywhere from a couple hundred dollars to a couple thousand. This includes a leasing fee (if you work with a property manager), repairs, marketing, etc. Not to mention that during the vacancy period, you won’t have any rent coming in.

By renewing your tenant’s lease, you save all that money you would have spent to get your property re-rented.

How to Renew the Lease

If the owner wants to offer a lease renewal, the first step is to decide on the rent increase. We recommend a 2-5% increase to keep your home just below market. The reasoning for this is so your tenant has the incentive to stay. If your home’s rent increase too high above market, they’ll likely look for another place that has more upgrades for a similar price.

Once you (or your property manager) decides what the new rent price will be, you should inform the tenant. This should be done at least 60 days prior to their lease expiration. At Good Life, we begin discussing a lease renewal with the property owner 90 days priors to the lease expiration. That gives them plenty of time to make a decision and if they choose to vacate, you’ll have time to fill the vacancy.

Send the tenants a letter stating that their lease is expiring and they have until said date to resign the new lease. Oftentimes the tenant will try to negotiate the price, especially depending on what the increase is. It’s up to the owner on whether or not they will lower the rent or will stand by their initial offer.

Keep in mind, agreeing to negotiate the renewal offer is not always a bad thing. Say the tenant wants a $30 increase instead of a $50 increase. While on the surface you might think this isn’t worth it, the cost of a turnover is much higher than the $20 a month you’ll be losing. Click the button below for our average turnover cost flyer

Reasons You Might Not Renew a Lease

If your tenant has lived in the property for less than 2 years, you don’t need a reason to terminate their lease. Simply mail them a letter and inform them that their lease is expiring on said date and they must be moved out by the end of that day. If they have lived in the residence for less than one year, you can give them a 30-day notice, but best practice is 60.

If you have a property manager, they’ll be handling lease renewals and in this case will likely recommend terminating the tenant if they feel it’s the right decision. While keeping a tenant is beneficial for keeping vacancy costs down, it’s best to take the advice of the manager if they feel they tenant will cause you problems and cost you money in the future. Typically they will strongly recommend a termination if the tenants become a liability.

Other reasons a termination might be a better option is if the owner wants to do extensive upgrades to the home that would prevent the tenants from living there.

However, If the tenant has lived in the property for over 2 years in San Diego, it falls under the just cause eviction law. This means that your reason for terminating a lease must be one of the following:

  • Nonpayment of rent
  • Violation of obligations of tenancy
  • Nuisance
  • Illegal use
  • Refusal to renew lease
  • Refusal to provide access
  • Correction of violations
  • Withdrawal of residential rental structure from the rental market
  • Owner or relative occupancy

In this case, when you send the letter notifying the tenant of the termination, you must state the reason for doing so and give them a 60 day notice. For more information on the just cause eviction law, check out this document from sandiego.gov.

We hope you learned some valuable information about lease renewals. For more tips on being a successful landlord, download our free guide

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Hi everyone, this is Natalia with Good Life Property Management. Today I’m going to go over all the information on renewing your tenant’s lease. We often get asked, should I be renewing my tenant’s lease, should I increase, and when should I offer an increase? Today we’re going to go through all of that with you. Let’s first go over the timeline when offering a tenant at least for a new home. You will want to begin planning and preparing about three to four months prior to the lease expiring. This gives you plenty of time to perform preventative maintenance walkthrough, negotiate with the tenant if needed, and kind of reduce the whole tenancy as a whole. You’ll want to be able to give them at least a 60 day notice prior with at least renewal that gives them plenty of time for you and the tenant to prepare. And if the tenant doesn’t want to renew, they’ll need to give you a 30 day notice to vacate or sign the lease renewal. The second thing I’d like to go over is if you should be renewing your tenant’s lease or not, they’ll want to review the overall tenancy. Are the pain rent on time? Are the pain care of your home? Are the compliance of the lease and the H.O.A. rules? If they are, we definitely encourage you to renew the tenant’s lease. If they aren’t and there’s a number of issues, they’re not compliant, they’re not paying the rent on time, those can lead to a lot of extra costs such as eviction costs, H.O.A. fines, and we definitely encourage you to review those risks to see if that’s worth it for you. It is important to check with your local city rules on not renewing a tenant’s lease. For example, here in San Diego, we have a just cause of eviction ordinance and we’ll put some more information in the box below. The third point I want to go over with you today is netting you the most profit on your investment. The secret to netting you the most profit on your investment is not necessarily increasing rents very high, but it’s actually reducing vacancy and keeping a good tenant. Keeping a good tenant that’s going to pay rent on time, take care of your property, and communicate when maintenance is needed, that’s always a really good idea. Although we want to keep the property along with the market, too steep have been inclined on the rent. We’ll actually encourage the tenant to move out. The reason for this is why not pay that same rate and get a unit that has fresh paint, it’s been clean and possibly even upgrades. Vacancy costs definitely add up and it’s very important to keep that in mind. Vacancy costs include the prudium rate for each day it sits vacant. The marketing costs associated with re-wrenching your home, the leasing fee to your property manager, the wreaking, and a lot of other factors. It’s important to keep that in mind. It’s about $2,000 on average to turn over your property and it sits on the market for about two weeks on average as well. Those are the three things that keep in mind when renewing a tenant’s lease. Keeping a tenant at a competitive rate will ultimately net you the most profit long term and prevent vacancy. For more tips on being a better landlord, be sure to subscribe to our channel and check out our blog.