When your rental term ends, is a lease renewal or extension the best option?
If your rental contract is due to expire soon, reviewing the differences between a lease renewal and a lease extension may be beneficial. Each type of rental agreement serves a different purpose, and it’s essential to choose the right one for your situation. We’ll break down each option to help you determine which is best for you.
What is a lease renewal?
A lease renewal is a document you use when you renew or sign another lease. A property manager will provide you with a new lease agreement to review. If you agree to the lease terms, you’ll sign it and create a valid contract agreement.
Your property manager should send you a lease renewal within 60 to 90 days of your current lease expiration date. If the property manager does not, you can ask whether they plan to renew the lease.
What is a lease extension?
A lease extension is an agreement that allows you to extend the conditions of your current lease agreement for a short period. Lease extension agreements are most common when a renter needs more time to find another property or the property manager and renter are still negotiating the specific lease terms.
A lease extension is not the same as a month-to-month agreement. Both parties must sign and agree to the lease extension before the current lease expires. If neither contract gets signed and the current lease expires, the property manager may accept a month-to-month lease, which is less formal than a lease renewal or extension.
Differences between a lease renewal and a lease extension
Explore the most significant differences between a lease renewal and a lease extension:
Contract changes
Since a lease renewal creates a new contract, changes to the agreement may include a rent increase. A lease extension won’t typically have any changes. Property owners are less likely to allow contract changes for the short term of a lease extension.
Purpose
The purpose of each type of agreement also differs between a lease renewal and an extension. A lease renewal creates a new agreement between the property manager and the renter. A lease extension extends the current contract.
Length of contract
Significant differences also exist between the length of contract types. Contract renewal may vary, with the most common contract agreements being month to month, biannual, or annual. A lease extension typically extends the current contract for 30 to 60 days. A lease extension won’t usually exceed 90 days.
Negotiation abilities
With a lease renewal, you may be able to negotiate the contract terms, including your rent price. If you pay your rent on time, you may have more bargaining power, especially since most property managers want to reduce renter turnover. Negotiations are less likely to occur with a lease extension because the property manager knows that you’re planning to move soon.
A lease extension is not the same as a month-to-month rental agreement. Both parties must sign and agree to the lease extension before the current lease expires. If neither type of contract gets signed and the current lease expires, the property manager may accept a month-to-month lease, which is less formal than a lease renewal and lease extension.
Contract terminology
Lease renewal and extension also have different terminology in the contract. One important difference is the legal instant of time. This refers to the time between when you sign the lease and when it expires. The legal instant of time with a lease renewal is much longer since you’re signing a new lease. It’s always a good idea to review any contract you sign in detail, whether it’s a lease extension or lease renewal.
Renter’s rights
Liability and renter’s rights also differ between the two agreement types. When you sign a lease renewal, your rights as a tenant may change. This is unlike when you sign a lease extension, which extends the rights you already had as a tenant. However, with a lease renewal, you may be able to negotiate more rights. Some rights to consider include:
- Exclusivity rights: This is the right that allows the renter to have exclusive use of the property.
- Right to security deposit: This is the right that the renter will receive their security deposit back if they don’t incur any damages to the property.
- Right of first offer: This is the renter’s right to make the first bid if the property owner decides to sell the property.
- Right of first refusal: This is the right that the renter has the opportunity to match any offers to buy the property.
- Discontinued/continued liability: This is the right that allows the renter to sublet their property and determines whether they’re responsible for late or missed payments.
These rights need to be renegotiated and listed when creating a lease renewal. A lease extension typically extends the renter’s rights that were included in the previous contract.
Pros and cons of lease renewals vs. lease extensions
You’ll want to consider the pros and cons of each type of rental agreement to decide whether to renew your lease or extend it. Here are some benefits and drawbacks to consider for each type:
Pros and cons of a lease extension
A lease extension can offer the following:
- It gives you time to check out other apartments and evaluate your options.
- It enables you to maintain the current terms of your lease agreement.
- It allows you to continue making your usual rent payments while you decide if you want to stay.
Cons of a lease extension
A lease extension has certain drawbacks:
- You have less security and may need to move out before finding another place to live.
- You’ll be subject to the terms of your previous lease agreement.
- Most property managers aren’t willing to extend a lease for more than 90 days.
Pros of a lease renewal
A lease renewal can provide renters with the following benefits:
- You can avoid moving costs by renewing and staying where you are.
- You can avoid the inconvenience of moving to a new apartment.
- You can develop a stronger relationship of trust with your property manager.
- You can maintain consistency in your daily schedule.
Cons of a lease renewal
Be aware of the following drawbacks associated with a lease renewal:
- Your agreement terms may change with the creation of a new contract.
- Your contract may be subject to an increase in rent.
- You may be subject to penalties if you have to terminate your agreement early.
- You have less flexibility after signing to negotiate a rent increase.
You’ll want to consider the pros and cons of each type to decide which rental agreement is suitable for you.
Reasons to consider a lease extension over a lease renewal
You might be wondering when a lease extension is more appropriate than a lease renewal. If you plan on staying in your current apartment for at least six months, it may make sense to sign a renewal. If you plan on moving within the next month or two, a lease extension may be more appropriate.
When renters are unsure about their plans, such as when they’re searching for jobs out of state or they’re unsatisfied by how fast a property manager makes repairs, a lease extension ensures that individuals have a place to stay. However, a lease extension doesn’t lock renters into a long-term contract.
Depending on your agreement with your property manager, you may be able to sign a lease renewal after the lease extension expires anyway. If you don’t have any plans to move soon, a lease renewal would be appropriate. You may be able to negotiate a new contract that better meets your needs during this time.
Reasons a property manager may request a lease extension
It’s also possible for your property manager to request a lease extension versus a lease renewal. The property manager may be considering the option of selling the property. It’s also possible that the individual is considering changing the agreement terms but hasn’t yet decided on the details. In the meantime, the property manager may offer a lease extension.
Things to consider before renewing or extending a lease
Deciding whether to sign a lease extension or lease renewal is an important decision. Here are a few things to consider that may make your decision easier:
- Budget: Consider if your current rent price fits within your budget. Compare your rent to nearby rentals with similar amenities to find out if you’re paying a fair price.
- Neighborhood: Decide how well you like your current neighborhood. You may not be able to find a rental in your same area, which means you may have to find new favorite grocery stores or restaurants to enjoy.
- Amenities: Evaluate the amenities you currently have access to and if there’s anything you’re missing. Signing a lease renewal locks you into another contract with access to the same amenities.
- Rental size: If you and your family need more space, a lease extension may be more appropriate while you find somewhere that better meets your needs. If you have no plans to grow your family and have sufficient room, you may decide to sign a lease renewal.
Considering these points can help you decide whether a lease extension or renewal is best for you. Make a list of the things you enjoy where you’re currently living, and then compare them to your wants and needs that may be missing.
Lease renewals and lease extensions are both common types of rental agreements that you may receive following your current lease’s expiration. Consider your plans, including how satisfied you are with your current rental apartment, when deciding which of the two lease options is suitable for you.
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