Many landlords of residential properties disregard the differences between a lease renewal and a lease extension and use them interchangeably. While a renewal creates a new agreement for a new term, a lease extension extends the term of an existing lease.
These documents have the same effect of continuing a rental contract but differ in some ways. Understanding the difference is vital to any landlord wanting to continue leasing to tenants after their original leases expire.
If you are a landlord wondering how to renew or extend a lease agreement when the expiration date is approaching, read on to learn how to use standard real estate documents.
What is a Lease Renewal?
A lease renewal creates a new agreement based on an expiring lease agreement. It often keeps all the existing lease terms; the only change is an updated rental period.
But, sometimes, a renewal will modify some terms or clauses from the original lease.
If a landlord and tenant have a good relationship and are happy with the original lease, they can renew it and keep the contract the same except for the new one’s beginning and end dates. They can also make changes if they are generally happy but want to modify a few lease clauses or terms. TIP
If landlords want to increase rent prices for renewed leases, they may send a Notice of Rent Increase and clearly state the new increased rent on the lease renewal form.
When Should a Landlord Use a Lease Renewal?
Landlords should use a lease renewal form when they want to:
- Continue a residential tenancy under the same conditions for a new lease period
- Keep the same tenant for another year (or a different period) and increase the rent amount
- Update the terms of the rental agreement
These situations and others make a renewal useful for a landlord.
A Landlord Can Refuse to Renew a Lease
A landlord does not have to renew a lease. Landlords can refuse to renew at the end of a lease if:
- A tenant consistently fails to pay the rent or pays late
- The tenants cause property damage or violate the lease policy
- A landlord plans to sell the property
- The landlord wants to move into the home
- The property owner has other legal reasons to do so (check with your state)
It is illegal to refuse to renew a lease for discriminatory or retaliatory reasons (e.g., tenants are exercising their rights).
Make sure you know your state’s laws to avoid potential issues.
What is a Lease Extension?
A lease extension agreement continues or extends the existing lease for a set period rather than creating a new contract. Landlords usually use an extension for a short term (for example, three months).
A property owner might agree to an extension to give tenants a little more time in the rental unit as they look for a new apartment, particularly if tenants are moving to a new city and need to coordinate travel.
Often, a landlord extends a lease to benefit from keeping the property occupied for a bit longer, such as during a slow rental period like the holiday season.
Important
Lease extensions typically provide the landlord and tenant short-term flexibility rather than obligating to a new agreement over a lengthy time frame.
The original agreement usually stays the same in a lease extension, but a landlord can modify specific terms and clauses, such as changing the rent amount. Of course, the tenant must agree to any new terms, and both parties must sign the extension to signify their acceptance.
When Should a Landlord Use a Lease Extension?
Landlords should use an extension form when they prefer to extend the current lease for a short time rather than renew it for a longer term.
Lease extensions are helpful when:
- The tenant wants a short time to find a new place to live, and you agree
- You want to find a new tenant but want to keep your property occupied for now
- You want more time to decide whether to renovate or sell the property
Summary and How to Create Your Form
Key takeaways: There are pros and cons to using a lease renewal or a lease extensions.
While these documents are similar in many ways, landlords often use the lease extension to keep a tenant in a property for just a few months after the original lease expires.
Renewal agreements help landlords secure tenants for another full rental term, even when a rent increase becomes part of the new lease. You do not have to create your lease renewal and extension agreements from scratch.
Instead, you can easily make and edit these essential documents with our form builders. Using our step-by-step builder, you will see how simple it is to organize the information and produce the documents that best help you run your real estate business.
Many landlords also save money using our customizable attorney-drafted forms that help minimize financial mistakes.