Unlike month-to-month rental agreements, which typically renew until the property owner or renter ends the agreement, standard leases generally have a set term. However, property owners can include a clause saying the lease will renew for another term unless the owner or renter gives notice they’d like the tenancy to end.
But is it worth it? Here’s what to keep in mind if you’re considering the switch to automatic lease renewals.
When both the property owner and renter are happy and want that tenancy to continue, using a lease that automatically renews means the owner doesn’t need to worry about negotiating a new agreement or chasing down a signature, says Megan Orser, co-owner of Michigan-based apartment services provider Smart Apartment Solutions and property management company Smart Moves.
Renters, meanwhile, don’t have to wait until their lease is nearly up to find out next year’s rent. Including a standard increase in the initial lease agreement lets them plan ahead, Orser says.
But automatically renewing leases can make it tougher to respond to changes in the market.
If local rents rise faster than expected, a property owner whose leases automatically renew — even with a standard rent increase — could be leaving money on the table, says Ann O’Connell, legal editor and attorney at Nolo, an online legal resource and publisher. It can also be more difficult to raise rents in response to unexpected expenses, like a surprise maintenance problem or spike in property taxes, Orser says.
The end of a lease is a natural reminder to make a decision about whether to continue renting to a particular resident and make any necessary updates to the terms, says Mark Galvan, senior case manager at Project Sentinel, a nonprofit that provides counseling and mediation in disputes between property owners and renters in California’s Central Valley.
If a lease automatically renews before the property owner remembers to make changes, they “can get stuck in the situation for another year,” he says.
Many states require property owners to notify renters of an approaching deadline so they can let the owner know they don’t want the lease to renew.
The state of New York’s Residential Tenants’ Rights Guide, for instance, says if a lease includes an automatic renewal clause, “the landlord must give the tenant advanced notice of the existence of this clause between 15 and 30 days before the tenant is required to notify the landlord of an intention not to renew the lease.”
Even if local laws don’t require giving renters a heads-up, it’s still a good idea.
“There should always be a conversation around what the contract says, and what it means,” Galvan says.
The bottom line? Weigh the benefits of easing the renewal process with the risk of getting locked into pre-negotiated terms. And it’s a good idea to communicate with renters as the end of their lease term approaches — whether it auto-renews or not.
By Lauren Zumbach from Story by J.P. Morgan