As a landlord or property manager, one of the main things that you should be concerned with is making sure that your properties are always occupied.

This means finding, screening, and managing tenants.

However, once the tenant's lease expires, a decision has to be made - should you renew the lease agreement?

This can be a very difficult decision to make, so we have broken it down and explained everything for you.

To begin, let's go over what we mean by a lease agreement renewal, as well as what it consists of.

What Is A Lease Agreement Renewal?

When a tenant's lease agreement expires, the landlord or property manager can choose to offer a lease agreement renewal. This means that the tenant can stay on the property for more time and the original lease end date is voided.

Although it sounds like a lease renewal would be the best idea for landlords, it may not be as simple as it sounds.

One of the main characteristics of a lease renewal agreement is that landlords only offer them to "quality" tenants. Landlords will most likely not offer lease renewals to tenants that have mistreated the rental property or have not followed the current lease agreement.

But, there are actually many other things to consider when a lease agreement is up for renewal.

In the next section, we will be going over all of the different pros and cons of renewing a lease. After that, we will explain the process of how to renew a lease.

So, let's get into the pros and cons list.

Pros & Cons Of Lease Agreement Renewals

Just like every property manager knows, there are pros and cons to everything. So, in this section, we will be going over all of the pros and cons of renewing lease agreements.

Let's start off the list with the pros.

pros and cons of renewing lease agreements

Pro: Saving Time & Money

One of the greatest benefits of renewing a lease agreement with a current tenant is that you don't have to spend any time and money on finding a new tenant. This is important because the process of finding a new tenant can become very expensive and take a very long time.

Not only do you lose money with having to screen another large batch of tenants, but you also lose a lot of rental income. This is because, while the property is vacant, the property owner is not receiving any rental payments from the property.

However, if you renew the lease agreement with the current tenants, they continue to pay rent to you, according to the lease terms.

Pro: Lower Risk Of Bad Tenants

Most property managers have dealt with at least one bad tenant in their career, and they know how inconvenient it is. This is why lowering the risk of bad tenants is another great benefit of renewing lease agreements.

When you are finding a new tenant, you are running the risk of losing a good tenant, which can be detrimental to the rental property. So, if the tenant expresses interest in renewing a lease, it may be best to accept it.

Pro: Stronger Relationship With Tenant

Another benefit of renewing a lease with a tenant is that you can build a stronger relationship with the tenant. And, one of the best parts of having a strong relationship with a tenant is that they may be able to eventually refer other tenants.

Or, if not, they will normally be very respectful when you are trying to sell or rent out the unit to someone else. This is incredibly important because selling an occupied unit can be very difficult with certain tenants.

Con: Could Be A Bad Tenant

One of the drawbacks of renewing a tenant's lease agreement is that you can potentially be keeping a bad tenant. This is the last thing that any property manager should want.

In these situations, it is always better to invest the time and money into finding a new tenant. This is, however, completely based on specific circumstances.

For example, if the tenant has been late on rent a few times, but has openly communicated about any of the problems, they may be worth a lease renewal.

Con: Unable To Make Renovations

Another drawback of renewing the lease agreement of a current tenant is that it can delay any renovations that you want to do on the property. This becomes a drawback because, if the tenant is currently in the property, you won't be able to do these renovations.

The only way to make these major renovations is by providing the tenant with temporary housing for the time that the renovations are being done. This means that you will have to pay even more money on top of the cost of the renovations themselves.

Con: Unable To Increase Rent

In many states, there are restrictions on how a landlord can increase rent for a tenant. This is why renewing the lease agreement could become a drawback for landlords.

It is important to check your jurisdiction's laws before making a decision because you could be risking an increase in rental income.

So, now that we know about all of the pros and cons of renewing a lease agreement, let's discuss the general process.

How To Renew A Lease Agreement

How to renew a lease agreement

In general, most states follow the same set of steps and guidelines when it comes to renewing the lease agreement. Below, we will be outlining some of these main steps.

Send Lease Renewal Notice

The first step for renewing a lease agreement is to send a lease renewal notice, or lease renewal letter. This is an incredibly important, and often required, step in the process.

By sending a lease renewal notice, you are notifying the tenant that they may not have to look for other places to live. Without one, they may begin to search for other rental properties and you may lose the opportunity.

Keep in mind that, for a month to month lease agreement, a notice is typically not required, and the contract will continue until one party terminates it.

Create Lease As Needed

If you are keeping the same lease, or one that is extremely similar, you most likely will not have to worry about creating a new lease. You will simply have both parties sign an extension agreement, which is usually a 1 or 2 page agreement.

However, if you are interested in making changes to the lease, you will need to draft a completely new one. It is important to remember, however, that the tenant may not accept these changes.

So, when drafting a new lease, make sure that the tenant knows what the changes are and allow them to voice their opinions on it.

Finalize The Agreement

After agreeing on terms for the lease agreement, both parties can finalize the process and sign the agreement.

At this point, the original tenant is now obligated to stay in the rental property under the terms of the lease agreement. They are to act just as when they signed the original lease agreement, as it is essentially the same thing.

Final Words

Hopefully, after reading this article, you have learned some more about whether or not you should renew a lease agreement with your tenant.

With all of the information here, you should be able to make an educated, informed decision while keeping your best interests front and center. And remember, if renewing the lease doesn't benefit you, there's no shame in letting the tenant know that you won't be renewing.

Santiago Aday is a Summa Cum Laude graduate and has a background in software development. As the Marketing Automation Specialist at DoorLoop, Santi loves simplifying the complicated aspects of property management.