Lease Renewals and Lease Extensions: Know the Difference

 Lease is like a renting agreement  with an end date. When that date gets close, the owner and the renter need to pick what to do next.  One can make a brand new agreement or just extend the old one a bit more. This article will explain the difference.

Table of Contents:

• The Basics of Lease Renewals


• Advantages of Lease Renewals


• What is a Lease Extension?


• Advantages of Lease Extensions


• Lease Extension vs. Renewal: How They Differ


• Financial Considerations for Landlords

The Basics of Lease Renewals

What is a Lease Renewal?

The lease agreement is like a set time you rent a place to live. If tenant want to stay longer, the owner can make a new lease renewal agreement allowing the tenant to live there. This new agreement might have different rules, and the rent could cost more in most cases.

Advantages of Lease Renewals

Avoid the apartment turnover process: If a tenant chooses to extend the lease for another term, landlords can skip the process of finding new tenants and save on different costs.
Avoid moving expenses: For tenants, sticking with the same rental place can avoid the hassle of moving and the costs linked with it.
A reasonable rental rate: Even if the landlord raises the rent compared to before, it might still be lower than what other landlords are asking for. According to the most recent Avail Quarterly Landlord and Renter survey, tenants who moved from their previous rental within the last year said that rent went up by nearly 27%—almost twice the increase faced by those who renewed their lease. So, while paying more rent is not great, tenants might end up saving more by renewing their current lease instead of moving.

What is a Lease Extension?

A lease extension occurs when tenants require the lease term to be prolonged for a specific duration through a lease amendment.

Advantages of Lease Extensions

Give both parties more time: Extending leases provides landlords with additional time to find their next tenant and gives tenants more time to find a new place to live. This is particularly useful for tenants who are in the process of purchasing a property or waiting to move until they finalize their homebuying.
The same rental agreements terms: Lease extensions enable keeping the terms unchanged for a few extra months if both parties are happy with the current lease terms. Landlords only need to make a lease amendment to extend the lease instead of drafting a new lease agreement.

Lease Extension vs. Renewal: How They Differ

Lease Renewal: It's like starting over. The owner creates a brand new agreement. This new agreement might have different rules, and the rent price might go up in many cases.
Lease Extension: Think of it as a quick boost. The owner makes a small adjustment to the agreement, adding a few extra months. The same rules apply, and the rent probably won't change.

Financial Considerations for Landlords

Assessing Market Rent
Before deciding on a renewal or extension, landlords should evaluate the current market rent to ensure their rates are competitive and reflect the property’s value.
Table: Average Rent Increase Trends
Table
Year Average Rent Increase (%)
2021 2.5%
2022 3.0%
2023 3.5%

Example Scenarios

Scenario 1: Lease Renewal
John's rent agreement is ending soon. It's like a one-year permission to live somewhere. John wants to stay in the apartment, so he talks to his landlord, the apartment owner. They agree on a new rent price and John gets to stay for another year. This is called a lease renewal because they made a completely new agreement.
Scenario 2: Lease Extension
Sarah's rent agreement is up, but she likes her apartment and wants to stay. She chats with her landlord, the apartment owner, and they agree she can stay for another 6 months. The rent amount and all the rules stay the same. To show this, they make a quick little paper called a "lease extension addendum".

Conclusion

Knowing the contrast between lease renewal and lease extension is important for landlords and tenants to manage lease agreements well. Each choice has advantages and factors to consider, affected by particular situations and state laws. By fully understanding these ideas, one can choose the best option for their needs.

Frequently Asked Questions

Q. Can I increase the rent during a lease extension?
A. Yes, but it’s essential to follow legal guidelines and communicate changes clearly.
Q. What if my tenant wants a shorter extension?
A. Negotiate based on mutual needs. Flexibility is key.
Q. Can I refuse a lease extension?
A. Yes, but provide valid reasons and adhere to legal requirements.
Remember, lease renewals and extensions impact your property’s financial health and tenant relationships.