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Cover All Bases When Extending Tenant Lease

Tips on setting rent, drawing up contract

by Robert Griswold

Q: Almost two years ago I bought a condominium unit in my area as an investment. My tenant has been pretty good about paying the rent and has not caused any problems. Her one-year lease is going to expire in less than two months and the weakened rental market has opened up a lot of vacancies in the area.

As a relatively new landlord, I was hoping to see what you thought about my strategy for asking my tenant to renew her lease. I would let her renew at the current rental rate as long as she commits for at least 12 months. If she wants to go to a month-to-month rental agreement, I will concur but only if the rent is increased by $50 per month.

If she renews the current lease, can I just prepare a simple addendum indicating that only the term has changed? Also, should I add a clause that states, “All prior conditions and disclosures are the same”?   I am not quite sure about the best way to extend the lease as far as the paperwork. What do you suggest?

A: It is not unusual in many parts of the country to find that the rental market has softened and rents are flat to even declining. So I landlord helpthink asking your tenant to renew her lease for 12 months with no rent increase is a reasonable idea. But be prepared by performing a market survey of comparable rents in the area in case she wants to negotiate and counter your offer with a lower proposed rent or give you a notice that she is vacating because she’s found a more reasonably priced rental property.

The amount of lost income and expense you will incur to replace this tenant can be significant so be sure you have done your homework and are not being unreasonable in your terms. Of course, it makes no sense for tenants who are satisfied at their current home to go through the hassle and expense of moving just to save a few hundred dollars over the next year.

Instead of preparing an addendum to add to the current lease form, it would be better to have a new agreement (lease or month-to-month) just so it is clear what the intention of the parties was at the time of the new agreement.

One problem I have seen with just extending the term of the original lease through an addendum is that there may have been rent concessions or other special consideration offered when the tenant first moved in that the tenant could try to imply are going to be offered again.

For example, if you offered two weeks’ free rent at the beginning of the lease, you might find that the tenant is expecting that same concession in the new term.

A new lease would also give you the opportunity to update your records if there have been any changes with the tenant, such as who is actually living in the rental property or any pets that have come or gone. You don’t have to provide disclosure language such as the lead-based paint advisory, as this is not a new tenancy, but your new agreement should be up to date with any other disclosures that are required.

This column on issues confronting tenants and landlords is written by property manager Robert Griswold, author of “Property Management for Dummies” and “Property Management Kit for Dummies” and co-author of “Real Estate Investing for Dummies.”

E-mail your questions to Rental Q&A at [email protected]. Questions should be brief and cannot be answered individually.

Copyright 2010 Inman News

See Robert Griswold’s feature, Are You Driving Out Your Good Tenants?

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