What Is Lease Renewal?

Why Lease Renewals Matter More Than You Think

Every time a tenant moves out, it costs you money. A lot of money. Between the vacancy period (typically 2-4 weeks), the turnover costs (cleaning, paint, repairs), and the time you spend showing the unit and screening new applicants, a single turnover can easily cost $2,000-$5,000.

A lease renewal costs you nothing. You send a letter, negotiate a modest rent increase, and both parties sign. Done. The tenant stays, the rent keeps coming, and you avoid all the turnover headaches.

Good tenant retention starts with a solid renewal process. If you are losing tenants at renewal time, you are either raising rent too aggressively or not communicating early enough.

How the Renewal Process Works

60-90 days before lease expiration: Send the tenant a renewal offer. Include the new rent amount, the new lease term, and any updated terms. Put it in writing, not a casual text.

Negotiate if needed. A good tenant might push back on a rent increase. Be willing to negotiate. Keeping a reliable tenant at $1,450 instead of $1,500 saves you the $3,000 turnover cost. Do the math before you take a hard line.

Sign the new lease. Once both parties agree, sign a new lease or a renewal addendum that references the original lease with updated terms. Keep the signed copy on file.

Update your records. Update your rent roll with the new rent amount and lease dates. This takes 2 minutes and keeps your financial tracking accurate.

How to Set the Renewal Rent

The right rent increase depends on three factors:

Market comparables. What are similar units in your area renting for right now? If your $1,400 unit could rent for $1,550 on the open market, you have room for a meaningful increase. If comparable units are at $1,425, a modest bump is appropriate.

Tenant quality. A tenant who pays on time every month, takes care of the property, and never calls with frivolous complaints is worth a discount from market rate. Seriously. A 3% increase for a great tenant beats a 10% increase that causes them to leave and a $3,000 turnover.

Your expenses. If your property taxes went up $600/year, insurance went up $300/year, and you need the income to maintain your NOI, factor that into the increase. These are objective, defensible reasons for raising rent.

Real Example: Renewal Math

Current rent: $1,400/month. Market rate for comparable units: $1,500/month. Tenant has been there 2 years, always pays on time, no damage, no complaints.

Option A: Raise to $1,500 (market rate, 7.1% increase). Tenant might leave. If they do, you face: 3 weeks vacancy ($1,125 lost rent) + turnover costs ($1,500 for cleaning, paint, minor repairs) + your time showing and screening (8-10 hours). Total risk: $2,625+ in direct costs.

Option B: Raise to $1,450 (3.6% increase, $50 below market). Tenant is likely to stay. You "lose" $50/month ($600/year) compared to market, but you avoid $2,625+ in turnover costs. Net benefit of keeping the tenant: $2,025 in year one alone.

Option B wins almost every time. And next year you can bump them another 3-4% toward market rate.

Common Mistakes

Waiting too long. Sending a renewal offer 2 weeks before the lease expires does not give either party enough time. The tenant may have already started looking for a new place. Start 60-90 days out.

Not sending a written offer. A verbal "so, you want to renew?" is not professional and creates no documentation. Send a written renewal letter or email that includes specific terms.

Raising rent too aggressively. A 10-15% increase will push most tenants out the door. Unless you are significantly under market, stick to 3-5% annual increases. Even in hot markets, balance the increase against turnover costs.

Not adjusting any terms. Renewal is your chance to fix lease problems. If you realized your late fee was too low, the pet policy needs updating, or you want to add a maintenance clause, do it at renewal.

Forgetting about rent control. If your property is in a rent-controlled jurisdiction, there are legal limits on how much you can raise rent at renewal. Know your local rules before sending the offer.

Frequently Asked Questions

When should I send a lease renewal offer?

Start the renewal conversation 60-90 days before the current lease expires. This gives both parties time to negotiate and gives you enough time to find a new tenant if the current one decides to leave.

What happens if neither party sends a renewal?

In most states, if the lease expires and the tenant continues living there with the landlord's acceptance, the tenancy automatically converts to a month-to-month arrangement under the same terms. However, this varies by state and lease language.

Should I offer a longer lease term for a lower rent increase?

Yes, this can be a smart strategy. Offering an 18 or 24-month lease at a smaller annual increase locks in a good tenant and gives you income stability. Just make sure you are not locking yourself into below-market rent for too long in a rapidly appreciating area.