Think of all the times in your life when your time at a certain place was up. Picture your last day of school or a job.
Now think of what you would have done if you'd wanted to stay longer. There are two primary methods to extend rental agreements. Choosing the right one is important for tenants and landlords.
Read on to learn the differences between a lease extension and renewal.
What Are They?
A lease renewal means signing a new lease agreement. California law says you must send a written notice 30-90 days in advance.
A lease extension is a short-term method of allowing the tenant to live on the property. They won't always stay another full term. Approximately 59% of leases are for a full year, but an extension may only be for a few weeks or months.
What Are the Differences?
One difference between renewing and extending a lease is the "legal instant in time." This is the term for the period between the expiration of the old lease and the signing of the new one.
This doesn't exist in the lease renewal process. The old lease continues as normal once it's extended. This doesn't give landlords time to add new clauses such as a rent adjustment.
The agreements can also affect tenant rights. A lease extension upholds everything they have before, but renewals may require them to renegotiate their:
- Exclusivity rights
- Right of first offer and first refusals
- Right of security deposits
- Continued liability
What are the Pros and Cons?
Lease renewals let tenants avoid the hassle and costs of moving. Landlords enjoy better relationships with them. That leads to higher tenant retention and reduced turnover costs.
Signing a new agreement can be a chance to negotiate more favorable terms, but it can also go the other way. Tenants may disagree with the changes, and a rental increase may scare them away.
Lease extensions are a way to get more time. Tenants can search for a new rental unit, and landlords can start tenant screening to find the right candidate. There's also no need to go through the process of updating the lease.
The flexibility of an extension provides less security. Tenants aren't protected against any unfavorable terms. Landlords can't raise the rent and must begin turnover sooner.
Which One is Right For Me?
Is your tenant happy with your agreement? Are they planning to move soon but need time to find a new place? Are they a problematic tenant, but you need time to find a suitable replacement? Consider an extension.
Is your tenant well-behaved but wants to change the lease agreement? A lease renewal may be a better option.
Always notify them in advance when their lease is about to expire. Discuss their options and negotiate the terms together.
Who Can Help Me With Leasing Management?
A lease extension temporarily continues an existing agreement, while a lease renewal creates a new one. Choosing the right one depends on your tenant's behavior and lifestyle.
Income Property Advisors, Inc. is a real estate firm focusing on property management and investment. We've been serving San Diego County since 2010. Contact us today to see what our superior service can do for your investment property.
