Think back to a moment when you needed more time to complete a project in school. Maybe you got sick or had a family emergency.
Did you know that tenants can also get more time to stay in their current rental? This benefits landlords as well by keeping a steady stream of revenue going.
There are two ways to go about it. Read on to learn the main differences between a lease extension vs renewal.
Different Types of Leases
Determining the difference starts by looking at the current lease. It may include a renewal agreement clause, an extension clause, or the option for either one.
Check the length of the original agreement as well. It'll determine how much bargaining power the tenant has and how much more time they'll be able to stay.
59.6% of leases are for 12 months. 31.8% are month-to-month. 8.6% involve another arrangement, most often 13 or 24 months.
Lease Extension vs. Renewal
A lease renewal creates an entirely new rental lease agreement. It could come with new terms, including increased rent. An extension only adds more time to the current agreement.
Renewing a lease involves a legal instant in time. This is the period between the expiration date on your original lease and the start of the next term. An extension doesn't involve this period. You're not creating a new one; the old one just continues.
A lease extension creates more time for landlords trying to fill vacancies and tenants trying to find a new home. It also saves them the hassle of negotiating new terms. It's a short-term solution until the tenant moves out.
There are also reasons you may want to convince tenants to renew leases. Creating a new agreement may let you increase rental rates. It saves both sides the expensive and time-consuming processes of turnover and moving. It's a long-term option for quality tenants.
Choosing and Negotiating
Choosing whether or not to renew or extend a lease depends on several factors. How has the tenant behaved? Do they pay rent on time? Do they want to move out and, if so, how soon? Do you want to renovate the property? How many vacancies do you have?
Tenants have negotiating power during lease renewals and extensions. This is especially true if they feel their rights or local laws have been violated.
As a landlord, you need to know what these laws are. Decide how long the lease should be extended or renewed and, in the case of a renewal, what terms may need to be changed. Provide plenty of time for the tenant to make up their mind.
Need Property Managers to Help with Leases?
Knowing the differences between a lease extension vs renewal when a tenant's time at a property is up. Extensions provide a bit more time without drafting a new agreement. Renewals start a new term with a new agreement to follow.
Harland Property Management offers a dedicated team to serve property owners across San Diego. Contact us to start maximizing the profitability of your investment today.
