At some point, most of us experience the process of renting a property. When we enter into a rental agreement, the expectations are typically for a one-year lease. Therefore, it’s important to understand what happens after the lease expires. We can sign a lease extension agreement, renew the lease, or move to other housing opportunities. Therefore, it’s important to know your options and understand the difference between the extension of the lease agreement and a lease renewal agreement. Additionally, these factors come into play beyond nearing the lease end. Furthermore, a lease extension is also discussed when the landlord has an interest in selling the property or involving a long-term tenant.

What is a Lease Extension Agreement?

A lease extension agreement is when the landlord and tenant consent to continue an existing lease and extend the terms of the lease. Furthermore, both sides sign a contract addendum to keep the original terms of the lease. Similar to any other documented agreement, the expectations from the contract must be clear with strong communication. When drafting up a lease extension agreement, these are the things to add or consider:

• The new duration or time frame of the lease extension. Whether the lease will continue with the same terms for a year, six months, or a month-to-month agreement.
• Any changes to the rent. Over time, most real estate rental markets increase in monthly rental rates due to factors such as inflation. Usually, when a lease is nearing the end, the landlord will review current rental rates to ensure they are receiving a fair amount for rent. If the rental rate has increased, the landlord will discuss this with the tenant and add it to the extension agreement.
• Clarify what happens with the security deposit. Most of the time, with lease extension agreements, the security deposit rolls over. Furthermore, meaning if there’s no damage or money owed, the renter receives the security deposit back at the end of the extension.
• Adjust any terms of the lease or continue with the same terms and expectations by simply signing an addendum.

When Should You Consider a Lease Extension?

A lease extension agreement can benefit both the landlord and the tenant. However, it’s vital to take into consideration how things may change with the extension, whether it’s a higher rental rate or agreeing on new lease terms. Furthermore, landlords may experience more advantages, but let’s review when you should consider the extension:

Benefits of Landlords Considering a Lease Extension Agreement

• Landlords have the opportunity of retaining long-term tenants with the ability to review and potentially raise the rent whenever it’s time for an extension.
• Before a property sale. When a landlord is considering selling the house, they will either sign a lease that will be transferred to the new owner or sign a month-to-month extension ending the residency before closing. Therefore, it’s appealing to the potential buyer depending on their wants and needs.
• Ability to renew or extend the agreement before the lease expires, which reduces the chance of a gap in vacancy. It’s a vital aspect because most landlords have ongoing monthly expenses such as mortgage payments, maintenance, and home insurance. Therefore, the landlord doesn’t miss out on any rent payments and can keep the rental process running smoothly without finding a new tenant.

When Should a Tenant Consider a Lease Extension?

• Ability to continue occupancy with a property they consider to be home. In addition, the renters are familiar with the landlord or property manager and know what to expect from their living situation. Furthermore, at times it’s difficult to come across a proactive and respectful landlord, which makes things more desirable to continue renting from that same landlord.
• Avoid the cost and hassle of moving to a new location. As we all know, moving to a new place can be challenging. As humans, we typically don’t prefer change because it gets us out of our comfort zone. Therefore, the same goes for our living situation, where we feel more comfortable in a familiar property with known expectations.

Legal Considerations for Extending a Lease

1. The rules and regulations may vary depending on the state. This is because tenant-landlord laws are governed by local or state legislation. Furthermore, the time frame the landlord needs to make the renter aware of the extension depends on the state. Some states force a notice of 60 to 90 days, while others allow for a shorter period of 15 to 30 days. Furthermore, some states allow for month-to-month leases after the first year. While others demand six months to a year for the extension.
2. It’s important to know if the lease extension agreement needs to be signed with a licensed notary company or if simply the landlord and renter can handle that aspect on their own.
3. The terms of a lease extension are usually carried over from the original lease. However, sometimes the terms, including the rental amount, can change. Therefore, the terms need to be clear, and the landlord needs to know how to handle disputes or tenants’ rights.
4. If a lease expires without an extension, it’ll be time for the tenant to relocate or for a whole new lease to be drawn up.

Lease Extension Agreement Vs Lease Renewal Agreement

A lease extension agreement various from a lease renewal because the extension can change the terms of the lease and the monthly amount of rent due. While a lease renewal agreement takes the original terms without any changes in expectations, rent, or whether it’s a yearly lease or a monthly lease. Furthermore, a lease extension tends to favor the landlord because the terms can be altered. While a renewal favors the tenant because the agreement stays the same without a rent increase.

How to Draft a Lease Agreement Extension

1. To obtain a lease extension agreement, a landlord can utilize multiple routes. You can locate a lease extension contract online, most of the time for a reasonable fee. Furthermore, the templates on the internet are legal agreements that will hold up in the court of law. However, the landlord can hire the services of a realtor, property manager, or attorney. These professionals can mediate the agreement, finding reasonable terms for both sides involved.
2. Drafting Guide for the Lease Extension: Referencing the original lease, using most of the same terms, but with the ability to alter different aspects and expectations. Clarify the terms; both sides need to agree before signing. Update the monthly rent on the contract or add/subtract any clauses when necessary.
3. Ensure correct dates and signatures on the agreement. Furthermore, the lease signed in front of a notary or simply between the renter and landlord.

Common Agreement Mistakes to Avoid

• Landlord presents unreasonable terms, whether it’s a substantial rent increase, limiting the tenant’s use of the yard, or forcing the tenant to be responsible for extensive repairs and maintenance.
• Failing to review the original lease. It’s important to know and understand the original contract terms, for the most part, continue those terms with minor changes to the clauses. Furthermore, it’s a way to protect yourself from violating tenants’ rights and expectations.
• Similar to the point explained above, a common mistake a landlord makes when doing a lease extension agreement is ignoring local landlord-tenant laws. Furthermore, overlooking the rules and regulations can lead to fines and even the landlord losing their rental license.

Understand the Lease Agreement and Expectations

A lease extension agreement is a vital aspect of the rental process. Daily, leases are extended worldwide, making it a common occurrence and something to fully understand. A lease extension varies from a lease renewal because the terms can change, from the rent to the clauses. An extension of a lease can benefit both a landlord and a renter; familiarity and comfort play a big role in a lease being extended. If both the landlord and tenants satisfied with the current housing situation, an extension makes the most sense for everyone.

Furthermore, a lease extension agreement can be guided by a professional or done between the landlord and tenant. If there’s any confusion, we highly recommend using the services of a property manager, agent, or attorney to draft up the agreement and oversee the transaction. A lot of legal responsibility comes with signing a rental agreement; therefore, always feel free to have a professional review the contract!