You want to change your newly signed 12 month lease to 6 months?
October 29, 2013 12:52 PM   Subscribe

How much more should I charge my tenant to change from a 12 month to a 6 month lease at her request after just signing the agreement 2 months ago?

I have a tenant who has been in my condominium for 4 years. She always pays on time and has only been a mild pain in the butt. We just agreed to a new 12 month lease at $1050 monthly with a $50 increase from $1000. I have generally been raising the rent about 5% every year.

Two months into the new lease, she is now asking to cut her lease back to 6 months because she wants to buy a house next summer. I’m not crazy about the idea and had been planning on having her the full year, but I think it is a reasonable request if she is willing to pay a rent increase. At a minimum, I would like enough to cover 1 month’s rent after she leaves to give me time to re-rent it in the event that I don't decide to sell. We have discussed her buying the condo previously but she is leaning more towards a house and I don't know if I am upside down on the mortgage, just breaking even, or maybe even have some equity.

If I change the lease terms, I would also be willing to refund the increase (or part of it) if she did buy or stay another 6-12 months after. (This might be my negotiation tool. “I want $x more monthly to alter the deal” I say. She will come back and try to negotiate down my new rent price down and then I offer the refund option instead).

If it helps the condo is in the 80235 zip code, 1400sq/ft condo with 2 bedrooms and 2.5 baths. The last tax assessment valued the property at $125k. I paid $147k. Zillow says it's back to $143k. I owe $125k

I am currently charging her $1050 or about .75 cents a square foot/monthly. I know this is below market value.

Zillow estimates the monthly rent to be $1375 - .98 cents a sq/ft. Looking at actual apartments for rent in the area, some of the less nicer places are going for about $.85 sq/ft up to $1.20 sq/ft. or more for a new luxury type apartment. These rates are for 1 year leases, not 6 months.

I've also read that one can calculate monthly rental value based on .8-1.1% of the total property value. This could bring rent to anywhere from $1000 to almost $1600 based on the values listed above.

She has been a reliable tenant for some time, but I think I could get more per month. (I do have some fear of the costs of fixing the place back up and finding new reliable tenants quickly).

So what is a fair and reasonable increase I ask her to pay in order to change the lease? Is there a standard percentage increase for a six month lease over 12 month one?

posted by Che boludo! to Work & Money (18 answers total)
I don't know why you would agree to this right now. You don't have to change a thing. If she wants to break the lease at some point in the future, that's when you tell her that she needs to keep paying rent till you find someone else. Any increase you negotiate now will not cover the costs of being without a tenant for up to six months.
posted by yogalemon at 1:04 PM on October 29, 2013 [2 favorites]

I've been on both sides of this equation: as the tenant and the landlord. My landlord would describe me as you did her. When I asked my landlord to change my lease he basically said "you're on the hook for rent until we or you can find another tenant to sign a year lease". This was fair and it was a good rental market so we had no trouble finding another tenant. He didn't charge me anything and honored the terms (I was refunded the security). If you think it will be easy to rent it out, change the terms with no charge.

If you want to charge more for the place, do it with the new tenant. I do the same as a landlord.
posted by PeaPod at 1:08 PM on October 29, 2013 [4 favorites]

The World Famous: "
She's giving you a gift by asking to shorten the lease. Don't charge her a penalty for giving you a gift.

Wrong. A 12-month lease is more money than a 6-month lease. She's not giving the landlord anything substantial; she's actually stating explicitly, "I might move out in 4 more months."
posted by IAmBroom at 1:09 PM on October 29, 2013 [4 favorites]

She's trying to be honorable here by telling you her plans, but both of you are better off leaving matters alone. From her perspective, flexibility about her departure date is good; she can't predict when she can move in to her next place yet. From your perspective, you'll need to repaint after a four-year tenant departs anyway, then you can charge more (if you're right about the market) and finally, you can collect whatever penalty your lease stipulates applies when she ultimately departs.
posted by carmicha at 1:18 PM on October 29, 2013 [1 favorite]

There's an apartment complex in our town that has different rental rates for the same unit depending upon the lease duration. For example for one unit they're quoting $2245/month basis a 12 month lease and $2520/month for a 6 month lease, i.e. 12% higher for the shorter lease.
posted by dabug at 1:24 PM on October 29, 2013 [2 favorites]

My daughter rents an apartment. Her lease renewal letter states that she can renew for 12 months at $xxx amount per month, or for six months for $xxx amount plus $150 per month. Numbers are close to yours. An extra $150 seems fair in your situation.
posted by raisingsand at 1:25 PM on October 29, 2013 [1 favorite]

The other thing to consider is that she'll have to pony up the rent difference for the months that have already elapsed. Or show that pro-rated into the new rent rate.

So let's say, $600 over the 6 month period, or $150 more for the next four months. Then she goes month-to-month, at $200 extra per month (trust me, if she's moving next SUMMER? That's actually 6 months from now, and unless she's actively looking, qualified for a mortgage, etc, chances are, she'll want to stay longer anyway.
posted by Ruthless Bunny at 1:31 PM on October 29, 2013

I have wanted to break a lease several times in the past, and have always needed to find a subletter or otherwise pay the same rent until the lease is over. She signed the agreement, it's on her to find suitable alternatives.
posted by tchemgrrl at 1:32 PM on October 29, 2013 [4 favorites]

I'm a landlord. Where I live, both the owner and the tenant are bound by tenant law. I couldn't raise the rent in such a case. I would have to make a true, good-faith effort to find a new renter, and could collect rent from the first person only until the new person moved in. You need to find out what the law requires and allows you to do. If your laws don't allow you to collect rent during the interval, you can still deduct that amount as a loss in your tax return.

The amount you could have charged if your tenant had moved out two months ago -- that's irrelevant, I'm afraid. That option is now off the table. I know it's frustrating to think..."It would have been better for me if..." Put it out of your mind. Instead, think of how you're benefiting from her early departure.

The amount at which Zillow values your place -- that's a rough estimate at best. When it comes time to set your new rate, ask around the neighborhood, look at apartment listings. You need to evaluate your place in term of what actual prospective tenants see when they look in your area. I have two units in different houses on the same block -- the smaller one commands a significantly higher rent, even though on paper they look the same.
posted by wryly at 1:36 PM on October 29, 2013

The simplest honorable thing to do is just to tell her that you're not willing to change the lease and she'll be on the hook for any months that the apartment sits empty if she moves out early. Also tell her that if she can give you sufficient notice when she does decide to move out and will work with you on showing the apartment during her last month (by keeping it looking good and being accomodating about appointments with prospective new renters) or if she herself can find a suitable new tenant for the apartment before she leaves, then there will probably be no need to penalize her. Then you will be able to start renting the place (to the new tenant) at whatever your research tells you is a reasonable rate.

It doesn't seem to me that a few months of incrementally higher rent would be worth the headache of dealing with a pissed-off tenant. Also, as others have pointed out, you may be on shaky ground there legally. However you are under no obligation to shorten her lease and at the same time you should be able to negotiate a smooth transition to a new tenant (at a higher rent) given this much time to lay the groundwork -- especially if the existing tenant remains well-disposed toward you, which I think she will if you tell her that you need to keep the existing contract but want to work with her on creating a smooth and painless transition for your mutual benefit if she decides to break the lease.
posted by Scientist at 2:58 PM on October 29, 2013 [1 favorite]

When I was like your renter, my landlord said I was on the hook to find a replacement or keep paying rent (fair). When my first replacement fell through, he said that I could break the lease by just paying an extra month's rent. I was thrilled to have one less thing to deal with, and he found someone to rent the place (at a higher rate, I'm sure) within the month, so he refunded that extra month rent to me.

In other words, do what's fair to both of you, and it may just be a win/win.
posted by ldthomps at 3:22 PM on October 29, 2013

I think a month is reasonable. or maybe a 10% hike.
posted by jpe at 4:06 PM on October 29, 2013

I couldn't raise the rent in such a case.

what's being proposed here is a modification of terms, so you certainly raise rent. what you're talking about sounds like the duty to mitigate damages in the event of breach, which is a different kettle of fish.
posted by jpe at 4:11 PM on October 29, 2013

Response by poster: I'm not trying to make more money off of her. I'm not making any money. Not that this is the tenant's fault, but I've lost a lot of money on the property as a rental and purchase. I'm trying to come out of this with the smallest loss possible. I am nervous about the time and income lost between the current tenant and replacement tenant.

I am more than willing to work with her, and from there came the idea of the offer to refund all or part of an increase in the event we work out a continued partnership, whether she purchases the house or signs another lease.

I'm also a renter as well as a landlord, I would never expect to be let out of a lease without some kind of negotiation or penalty.
posted by Che boludo! at 5:39 PM on October 29, 2013

Response by poster: So, maybe I just tell her, "OK, you are making plans, thank you for letting me know this far in advance so I can do the same. I am willing to cut the length of the lease and am planning to make a significant increase to the next tenant. Knowing this would you be willing to pay $X more than you are currently paying to stay there after X/X/2014 if your plans don't go through?" Her $X more would be less than I would charge a brand new tenant.
posted by Che boludo! at 5:54 PM on October 29, 2013

1. If the unit can be rented out for more money, then the landlord will make more money when the current tenant moves out.

Emphasis mine. Just because they could get more per month doesn't guarantee that the moment the previous tennant leaves, there will be a new one lined up.

The risk that the landlord takes in allowing the contract to be cut short is that the place could stay empty for several months between tenants.
posted by mr_silver at 2:52 AM on October 30, 2013 [2 favorites]

As a landlord (and recently a tenant, too) I would think about it this way: What does it cost you to have it change to a six month lease? Are there going to be more costs to you to find a new tenant sooner because you expected to spread that cost over 12 months instead of 6? Will the lease be ending at a really bad time to rent to someone else (here in Boston, renters almost always start up leases in August/September and there is almost no one looking to rent starting in February)? That is the justification for raising the rent on a shorter lease. Maybe you advertise on Craigslist and do the background checks yourself in a town where you will find a tenant any time of it won't cost you anything but a couple hours of time but gain you a happier tenant.

The alternative is to NOT change the lease, and let the tenant know that if they move out after six months that they will risk the same things they would normally risk....extra rent paid to you while you find a new tenant.
posted by BearClaw6 at 8:00 AM on October 30, 2013

In some states a renter can break a lease with no penalty if they have an executed contract to buy and close on a house.
posted by toodleydoodley at 5:21 PM on October 30, 2013 [1 favorite]

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