One day, seemingly out of the blue, a gentlemen called me with a problem and he wanted my help. He owned an apartment building and almost 2 years ago (after he moved out of the area) his property management company signed a 2-year lease with a sex offender. Not surprisingly, people started moving out and so the management company doubled down on their strategy by signing more 1-year leases with more sex offenders. Unfortunately (or fortunately, depending on how you look at it), they couldn’t fill the entire building. So this man was losing money every month. When he called me, the final lease was about to end and turn month-to-month. That meant he could finally do something different with the property.
Through our conversations it became clear that he wanted to move on and sell the property. We came to an agreement as the final lease ended and I started a turn around project.
What about you? If you have a lease ending, what are your options?
My Tenant’s Lease is Coming To An End, Now What?
I like leases because they leave nothing open: you and the tenant agree upon an arrangement for a fixed amount of time. There’s no question about when the time is up, and it creates a natural timeline to talk about a rent increase. Both of those reasons help with planning significantly – which as a DIY landlord can be a big deal since turn overs can cause major disruptions in your life.
The certainty during a lease period is great. But what about when it ends? What are your options moving forward? There are 3 choices.
Option #1: The “Do Nothing” Strategy (Not Recommended)
Technically, if neither of you do anything, the lease converts into a month-to-month agreement. That’s what happened with the owner who called me. The problem is that you and the tenant may not be on the same page. You may be expecting them to stay, but they may be expecting to move. Or they may think the lease ends NEXT month (trust me, this happens). The point is that you should talk to your tenant at least one month before the lease expires. Let them know what you’re thinking and ask them what they would like to do.
Start with a simple phone call or email: “It looks like our lease agreement is set to expire in a month. I wanted to touch base with you ahead of time and get a feel for what you’d like to do.” Then you can go into the next two options.
Option #2: Renew the Lease
If the tenant paid on time each month, took care of the property, and communicated well with you – you have a responsible tenant and should renew the lease.
During renewal, you don’t need to keep everything exactly the same. For example, you can update to the latest paperwork with the latest rules. You can also change the lease period. Maybe it was a 1-year lease and they would like 2-years. Maybe you want to make it a month-to-month agreement. This is your opportunity to change anything.
The big item you’ll want to re-evaluate is the rent. Here’s how to determine how much to charge for rent. If you decide to do a rent increase, start that conversation early so they can mentally prepare to pay more. You’ll also want to find out how far in advance you’ll need to give notice. Do a search for “rent increase notice in [state]” and read the first couple of results.
If you’re not sure with a lease renewal, use the stated time for a month-to-month agreement: typically 30-90 days.
Even if you’re not going to change anything, you still want to sign a new lease agreement and review the rules/expectations with them.
Option #3: Let the Lease Expire and Start Finding a New Tenant
If you, or they, are ready to move on, let the lease expire, and clarify the move out date. You’ll want to remind them of your cleaning requirements and the deposit amount your holding. I also like to get permission to show the unit and ask them the best time(s) I should set up the walk-throughs. I still follow up with 24-hour notices when actually doing the walk-throughs.
Then start advertising and looking for new tenants. The S.O.L.I.D. Screening Method walks you through step-by-step on how to find responsible tenants.
So those are your options. The decision to renew (with or without a rent increase) or let it expire is hopefully an easy one. The critical success factor is to talk with your tenant before the lease expires so that both of you are on the same page.