A rental agreement is a legal contract between a property owner and tenant that allows the tenant to live in a property for a defined time limit. It lists all the terms and conditions that both parties have to follow. A rental agreement is used for both residential and commercial properties.
Most residential rental agreements are signed for the next 6-12 months. When they are about to expire, both parties have to make a decision about the renewal of the agreement. Tenants generally prefer to continue living in the property for an extended period of time if it has a low-maintenance cost, commands reasonable rent, and is in a suitable location.
On the other hand, landlords prefer to rent out properties to those tenants who keep their property protected and pay the rent on time. So, depending on their experiences, both parties make a choice about the renewal of the rental agreement.
However, before making a decision, it is important to factor in the different benefits of renewing a rental agreement. Graana.com, Pakistan’s smartest property portal, describes the advantages of new rental agreements and also guides you on the process involved.
How to Renew Your Rental Agreement
The following are some advantages of choosing to renew a rental agreement:
- Eliminates the cost of finding a new tenant
- Saves time
- Reduces the risk of vacant spaces
- Removes risk of bad tenants
- Readjusts rent price and tenancy duration
Eliminates the Cost of Finding a New Tenant
Finding a suitable tenant consumes time and also takes lots of money in marketing the property. Once a property is vacant, it needs preparations for the next tenant. From minor repairs, maintenance expenses, and cleaning costs to mortgage and property management prices, it can be a very costly process. Hence, renewing the existing rental agreement is a better alternative.
After a tenant leaves the property, there are low chances of new tenants shifting in right away. It can take weeks or even months to find new tenants. This can be a long process with several steps, such as:
- Preparing the property
- Advertising for tenants
- Sorting through the applications
- Meeting various prospective tenants
- Screening tenants
- Drafting a renewal agreement that both parties agree upon
For every property owner, this complex process is not convenient or desirable. Therefore, renewing the rental agreement is much better.
Reduces the risk of vacant spaces
After a tenant leaves the property, it takes time to find a new tenant. During this time, the property remains vacant. This makes it subject to the risk of break-ins and vandalism.
Also, it is a loss of a potential income source as a leased property is a steady income source. Property owners may be depending on this income for maintenance work, utility payments, and to keep other expenses in check.
Renewing the rental agreement with old tenants can save a property from being vacant.
Removes risk of bad tenants
If you have formed a friendly bond with your current tenant, renewing the rental agreement saves you from renting out to potentially unsuitable tenants instead. Even a thorough screening process cannot guarantee that you won’t encounter any problems with an individual in the future.
To avoid this uncertainty about new tenants, renewing the agreement with an old tenant is beneficial.
Readjusts rent price and tenancy duration
Property renewal agreements provide the opportunity for both the landlord and tenant to readjust the rent prices and tenancy durations. Lease agreements follow the current market rates. When a 12-month agreement is signed, the appreciation value is set according to the present market rates.
With time, property prices increase. Sometimes, there are chances that property rates decrease due to certain unexpected changes in the market. So, in both cases, it is important to review the rates.
How to Renew the Rental Agreement?
After considering all benefits, it is essential to follow the formal steps that are necessary for renewing the agreement.
Step 1: Write a notice to the tenant
Step 2: Set up a meeting with the tenant
Step 3: Define the new terms and conditions
Step 4: Write the new agreement
Write Notice to the tenant
When a rental agreement is about to expire, landlords usually prefer to send a notice to the tenant about the renewal of the agreement. Depending on the market rates, the landlord may send a simple renewal notice or ask for an entirely new rental agreement.
Set Up a Meeting With the Tenant
After sending the notice, meeting the tenant comes next. It helps both parties discuss the process of agreement renewal.
Define the New Terms and Conditions
Both parties need to discuss the new terms and conditions that are in the interest of both the tenant and landlord. Mostly, new rent rates, tenancy duration, property maintenance, tax payments, insurance amounts, and a few other factors are part of this new agreement.
Write the New Agreement
Once the terms and conditions are mutually decided upon, they are included in a formal, written agreement. The tenant can keep living in the property till the new tenancy period expires.
For more information about rental agreements, visit Graana Blog.
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