My Tenant's Lease is Up - So What Happens Now?
The standard lease obligates your tenant for a one year period. If a lease is for a shorter or longer time period the specifics will be discussed with you at the time you approve the tenant. It is now ten months after your tenant moved in and the lease is about to expire. What happens now?
ONEprop will notify you of pending expiration and ask your intentions
45 to 60 days before the expiration of your initial lease term someone from ONEprop will contact you and ask for your intentions. What do we mean by this? Most of our clients own rental properties as long term investments. As a long term investment the desire is to maximize revenue and keep overall costs low. Part of this equation is to retain good tenants and increase rents when possible. When we call you we are assuming you want the same thing, but if your needs are different please let us know immediately. Unless you need to sell the home in the near future we can help protect you be offering your tenants an opportunity to extend their initial lease period for an additional year at a fixed rent price.
When can we raise the rent for the current tenant and by how much?
At the end of the initial lease period is the time we are allowed to raise the rent. We are required to provide the tenant notice 45 days in advance of the new rent rate. When we contact you we will offer a recommendation for the new rent. The recommendation will be based on current market conditions and an analysis of comparable rental rates of similar homes in the neighborhood. We also recommend a month to month rental rate. The lease automatically renews on a month to month basis if the tenant doesn't renew for a year or neither party gives the other a 45 day written notice to move out. This is typically a rate that is 5% higher than the rate offered for the one year extension. The reason to force a higher rent rate for a continuation on a month-to month is that your risk is higher, so the higher rent is to offset your higher risk. The tenant is also paying for the flexibility to move out at anytime with 45 days notice to Landlord.
Our call to you will sound something like this:
We want to let you know that your current lease at 123 Main Street will be expiring soon. You are currently receiving rent at a rate of $1,195/month. Based on the current market conditions we are recommending you offer the tenant the opportunity to renew for an additional year at $1,215/month or accept an increase to $1,275/month if they allow the lease to continue as a month-to-month lease.
No matter what option is accepted by the tenant the initial lease is still the valid contract that governs rules and responsibilities of both parties.
How is the tenant notified of the change in lease terms?
We send a letter to your tenant via regular mail with appropriate advance notice. The letter will notify the tenant the rent is being increased and the effective date of the increase. The letter will also offer your tenant the opportunity to lock into a slightly lower rent rate if they extend the initial lease period for another full year. It is very important you let us know if you do not want to offer them a renewal for another complete year, if they accept an offer for another year you must honor that obligation and it can hinder your ability to sell the house sooner. This is also the time when we have the opportunity to modify other terms of the lease. An example is that older leases allowed the tenant up to the third of the month to pay the rent without incurring penalties, the letter we send also modifies these leases so penalties start accruing if the rent is not in paid in full on the first day of the month. We also incorporate changes in lease as required by new laws that may have been enacted during the current lease term.
What if the tenant does not respond to the letter where we raise their rent?
The letter only requires a response from the tenant if they want to opt for an extension of the lease period beyond a month-to-month tenancy. If they don't respond we send a second letter thirty days after the first letter. After the second letter it is assumed your tenants are accepting tenancy on a month-to-month basis, they have been notified properly and they will start paying rent at the higher rate. ONEprop will enforce the higher rate as of the effective date in the notification letter.
What if the tenant does not like the increase?
There is almost always opportunity for negotiation. We will use our best experience to determine if there is need for continued negotiations and will work with you and your tenant to arrive at a mutually agreeable solution. Don't forget that our client is you, the homeowner, and any advice we provide is based on our experience on how to help you get what you need from your investment. If you ask the impossible we might not be able to get it for you, but you can count on receiving the experience available from over twenty years as a business managing investment properties.
What if the tenant decides to move?
The lease used by ONEprop requires the tenant to provide 45 days notice of their intent to move. They have committed to you they will stay through the end of the term of the lease. Whenever a tenant moves you, as the owner, will incur additional expenses so we make every attempt to retain the tenant in order to minimize your financial exposure. Owner costs incurred at a tenant turnover include, but are not limited to a) locksmith charges b) leasing expenses c) make ready expenses associated with normal wear and tear d) lost revenue due to vacancy.
Doesn't ONEprop make money from leasing fees?
The reality of the current market is that our expenses associated with leasing your home exceed the fees we charge. ONEprop spends over $10,000/month in advertising, we pay salaries for marketing specialists, we pay co-broker fees to outside agents, we pay salaries for staff to perform background checks and also pay other miscellaneous expenses like signage and lock boxes. All these expenses are above the normal overhead like insurance and taxes for any business. Our business is structured so our incentives are aligned with our clients - it is better for you and for ONEprop if the tenants continue to renew and we never incur the costs associated with replacing a tenant.
I know I want to sell the home when the time is right, what do I do?
The first thing you need to do is let us know of your desire. Tell your property manager so they can let others know of your intentions. Most of our clients have a "buy & hold" strategy so don't be shy about reminding us again that you are not in that situation. ONEprop can help you in a few other ways. First, we have sales specialists who can run comparable's and offer expert advice on what your house is worth, what expenses you might incur to market the home and how long it should take to sell. Second, we have clients who are always looking for rental properties. Investors might even be willing to buy a home even if you have an existing tenant. Third, though it is very rare, we have sometimes been able to broker a sale to your existing tenant. Selling a home is like selling anything else; tell everyone you know what you have for sale, the more people who know the better.