Landlord’s Guide to Lease Renewals

Landlord’s Guide to Lease Renewals - Article Banner

Renewing lease agreements with existing residents is good for the consistency of your rental income and it’s important for your long term return on investment (ROI). In our current rental market throughout the East Valley and in places like Phoenix and Mesa, retention rates remain fairly high, even while rents have stabilized and stopped rising. Tenants are still likely to pay less by staying in their current home than they will if they move. Most residents understand this, and they’re willing to renew their lease agreement as long as they’re having a positive rental experience.

You cannot take a renewal for granted, however. There are still plenty of reasons that you might lose your tenant and be left with a vacancy.

We’ve put together this landlord guide to lease renewals to ensure you’re prepared and well-equipped to manage the process, whether you have a tenant who is eager to stay or one who needs some convincing.

Start by Reviewing Your Existing Lease Agreement

There are likely to be timelines and processes that need to be followed based on what’s already in your lease. So, start the renewal process by reviewing your current lease agreement. Your lease may have the tenancy switch immediately to a month-to-month rental agreement when it expires. Or, it may require a renewal or for the tenants to vacate.

The most important thing you’re looking for is the amount of notice a tenant needs to give before vacating. The lease should also state how soon you should begin the renewal process.

Ideally, your lease will require at least a 60-day notice period if your tenants want to leave. This means that if a tenant plans to move out, he or she needs to notify you in writing 60 days ahead of the end of the lease. If you do not hear from them within those 60 days before the lease ends, you can reasonably expect that they’re interested in renewing the lease with you.

Set up your own timeline based on the number of days in your lease. If you’re working with the 60-day notice period, you’ll want to approach your tenant before the 60-day market about their thoughts on renewal.

Something to consider: More and more Phoenix rental properties are in an HOA or community association. If you’re renting out a home that is in an association, you’ll need to find out if there is any additional renewal paperwork that’s required by the association.

Evaluate Your Tenant and Decide on the Value of a Lease Renewal

Before you begin the process of renewing a lease agreement, you have to decide whether you want your tenant to stay in place. Have they been easy to work with over the term of the current lease? Would you like to have them living in your property for another year or longer?

Unless there’s a serious reason that you would not offer a lease renewal, we recommend you do it. That’s because retaining tenants is good for your bottom line. You’ll save money on vacancy and turnover costs.

We know that some tenants are difficult, and you may want to end the relationship rather than extend it. Here’s what you should be thinking about before you offer a lease renewal:

  • Whether the tenant has paid rent on time over the last year.

  • If the tenant has maintained the property and promptly reported maintenance needs.

  • Whether the tenant is easy to communicate with.

  • What you’re planning to do with the property over the next year and long-term.

While making a lease renewal decision, your Phoenix tenants will be thinking about their own desire to stay in your property. They’ll evaluate whether they have had a positive rental experience over the last year. They’ll do some of their own research to see if the rental they’re currently paying matches the local rental market.

They’ll especially be sensitive to whether maintenance and repair needs were responded to promptly. They’ll be thinking about whether their landlord is transparent and helpful or difficult to deal with.

If there won’t be a lease renewal, you’ll want to begin making turnover preparations. Let the tenants know what they’ll need to do before moving out if they expect to get a full refund of their security deposit.

If, however, you move forward with offering a lease renewal, get all of the paperwork in order and establish a new rental rate so your tenant has some time to think about it.

Communicating with Phoenix Tenants about the Renewal

Get in touch with your tenants ahead of the notice period that’s in your lease agreement.

Send a letter or an email about the approaching lease end date. Then, provide them with their options. Those options will depend on what you’re willing to do. You can ask them to:

  • Sign a new 12-month lease to continue renting the property.

  • Switch to a month to month instead of signing a lease agreement (if this is an accommodation you’re willing to make).

  • Move out and provide notice of their intent to vacate.

Talk openly with your tenants about the pros and cons for them to each option. For example, signing a new one-year lease agreement will result in a better renewal rate. If they’d prefer to go month to month or to stay in the property for an extra three months or six months only, you might be willing to consider that. However, you’re within your rights to ask for a higher rental price in exchange for that flexibility.

Moving out comes with its own pricing risks because tenants will generally find that rental values have increased over the course of the year that they’ve been renting with you, and it may cost more to find a new rental home in the local area.

This is why the rental rates you offer must be strategic.

Encourage your tenants to get in touch with you as soon as possible when they’re ready to provide their decision. The more notice you have, the better you’ll be able to negotiate the rent and the terms of the lease renewal with your residents.

Some renters will simply sign off on the lease renewal without comment. Others will immediately let you know that they are planning to move out.

And sometimes, you’ll have tenants who will want to negotiate the renewal options. They may want to ask for a lower rental rate. They might want a new appliance or some kind of perk that will keep them in place. We recommend that you keep the lines of communication open. Be willing to hear their requests and consider negotiating.

Should You Offer a Month to Month Option?

Most initial lease agreements are for a fixed term, usually 12 months, but sometimes 6 months or 18 months. You might find, at the end of that lease term, that your tenant wants to stay in place, but not for another fixed term. If they don’t want to make the commitment, are you willing to let them stay in place on a month to month basis?

This offers a lot more flexibility for you and your tenant. But that flexibility can be costly, especially if the market changes and you find yourself unable to fill your vacancy once your tenants do decide to move out.

There are pros and cons. You’ll have more flexibility with pricing, lease terms, and tenant selection. However, there’s also more uncertainty. For that reason, month to month agreements aren’t entirely desirable. And, if you do find yourself agreeing to this, you’ll want to make sure you’re earning enough rent to make it worth your efforts. Make sure that there’s a written agreement that reflects the terms and the new rent.

Establishing a New Rental Amount When You Renew a Phoenix Lease

As your tenants agree to sign a lease renewal, they’re likely expecting that their rent will go up. Unless there’s been a dramatic change in the market, they know they’ll be paying more for the next year than they did for the last year.

You should raise your rent at renewal time. But, you should also keep it reasonable.

Do some research on the Phoenix rental market and make sure you have the necessary data and documentation that supports your decision to raise the rent. Always be open to talking with the tenant about why rent is increasing.

There’s also a consideration for tenant retention when raising the rent. Good tenants are valuable, and you want to keep them in place. The best thing you can do is to establish where your rent should be according to the market, and then keep your renewal rate just a bit lower. This will give your tenants the incentive they need to stay where they are and renew their lease.

Lease renewals require a lot of detailed planning, but they don’t have to be difficult. If you’d like some help managing your own lease renewal process, we’d love to provide it. Please don’t hesitate to contact us at TCT Property Management Services. We manage homes in the East Valley, including Mesa, Gilbert, Chandler, Scottsdale, and Phoenix.