In this month’s Property Management series, expert and EAC director, Elizabeth Sargood talks lease renewals: why it is important they are completed on time, and the advantages of having a lease for landlords, tenants and agencies.
If you’ve read any of our Property Management series articles, you are likely very clear on the fact that PM is an action-packed, high-demand, fast-paced profession.
One minute you may be chasing up rent that has fallen behind, the next you are finishing up a tenant check out, managing conflict between two parties, or running around completing any number of other important duties that keep your properties ship-shape and your landlords and tenants happy.
Despite the length and complexity of your to-do list, compliance and lease agreements must often take priority over other tasks, so you can ensure your rent roll is running smoothly and generating optimal revenue.
In an earlier article, we focused on compliance in property management — what you need to cover, and how you can effectively communicate with your team so every agent is always working in line with the law.
In this article, we take a look at lease renewals and how that little bit of extra work now, can save you and your landlord big headaches down the track.
1. Give your landlords the security of a prompt lease renewal
Renewing a lease on time offers not only your landlord, but also your agency, greater financial stability.
As an investor, often your landlord will have purchased a property with the hope a regular and reliable tenant will help them pay off their mortgage.
If your landlord experiences a significant period of time within which their property isn’t rented, that flow of income obviously stops, and they need to find additional funds to meet their financial obligations to the bank.
Renewing a lease locks a tenant in so a landlord knows (if all goes to plan) that they will receive rent for a predictable period of time. Likewise, as the PM, it means your revenue is also guaranteed to remain stable — because you only get your cut, when the landlord gets their rent!
If you are an agency that operates on KPIs in PM, renewing a lease to maintain revenue is a much easier way to meet your targets than hunting for a new tenant!
2. Landlords know their property is protected
A really important consideration for landlords is landlord insurance. It is often taken out in lieu of building or content insurance, and protects property owners against damage that may be caused by a tenant.
In some cases, this insurance only covers landlords when they have a tenant on a lease — so if the tenant is in the premises without a lease, or there is no tenant, but damage occurs, the landlord is responsible for covering the costs of any damage.
As the agent managing the property, a big part of your job is acting in the best interest of the landlord. When approaching lease renewal, it should be made clear that checking the terms of landlord insurance is vital, so your property owner is aware of their level of cover should the lease not be renewed on time.
3. Lease conditions offer greater benefits to everyone
If you take a quick tour around the internet, it is easy to find dozens of case studies that clearly highlight why having a fixed term lease is so important.
Recalling just two: one tenant, whose lease had expired, had lived in a property for three years and intended to remain in the property indefinitely. Suddenly, with no warning, they were given 90 days’ notice from the landlord to vacate.
The tenant was devastated but really had no rights to fight the termination — the workload of the PM increased markedly during this time as they managed the conflict and complaint.
In another situation, the landlord of a property with a tenant on a periodic agreement needed to terminate the arrangement. They provided the 90 days’ notice, expecting they would receive rent for around another three months.
Upon receiving the termination notice, the tenant quickly found another rental (within one week!) and moved out with no requirement to pay any further rent. The landlord was unexpectedly left without more than two months of income and had to make up the shortfall in mortgage repayments.
Lease agreements have been developed for a reason, and put simply, it’s so everyone involved knows what to expect — so they can plan their lives and finances, with fair notice of what is coming next.
As a PM, ensuring the experience of your landlord and your tenant is as fair and comfortable as possible is really important. Achieving this is made much easier when both parties are very clear about what is happening and when, and can prepare accordingly.
4. Reduce wasted time and money
The final and perhaps, one of the most important reasons to renew leases on time is a simple one — so you and your landlord can hold onto good tenants.
By allowing a lease to lapse and a tenant to begin a periodic agreement, you risk losing the tenant — maybe because they would prefer a property that offers them more long-term stability, possibly because they find a new property that suits them better and there is no lease in place to stop them from moving on.
When this happens, in addition to losing a great tenant, as the PM, you then also need to have the property cleaned, re-advertise it, re-show it and try to fill it in a timely manner (more tasks for your multi-page to-do list!).
During that period, your landlord will be receiving no rent, and your agency will only receive their monthly admin fee (depending on your agreement).
In addition, the landlord will be paying the fees for promoting the property and a re-letting fee, meaning effectively, they may be losing money.
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When you add chasing up lease renewals to the other requirements of your role — especially with a tenant who may be avoiding a lease, or a landlord who is busy and difficult to pin down — it can be easy to let the task fall through the cracks.
But for you, the tenant and the landlord, having those additional protections, stability and security in place can be highly beneficial. That little bit of extra work now, can save you hours later!