Taking the Time To Review Your Renewal Process Can Save Lots Of Headaches
The business axiom that it costs less to keep a customer than to get a new customer certainly applies to the rental industry. Every community wants good residents to stay forever, and sends good residents renewal letters. However, communities also send out too many renewal letters that shouldn’t be sent.
Renewal letter horror stories run the gamut, generally renewal letter problems fall into two categories. One, you accidentally send a renewal letter to a resident that should not be renewed. You were planning on serving this resident with a Notice to Vacate, but instead sent a renewal letter. Two, after you send a renewal letter that you meant to send; the resident becomes a problem. With many management companies adopting sixty-day notice periods, the renewal letters are being sent as much as three months prior to the end of the lease term.
Even an ideal resident’s circumstances and conduct can change in three months. This problem is especially true for residents who have been marginal problems, but become huge problems after the renewal letter is sent. You can go through with renewing a problem resident, and then you may have to pursue a difficult non-compliance eviction. If you evict, the resident will attempt to club you over the head with the renewal letter. “Your honor, if I am such a bad resident, why did they offer to renew me?”
Can you rescind, or take back the renewal offer if it was sent by mistake, or circumstances have changed to the point that the property is justified in not renewing? Maybe, it depends on the language of the renewal letter.
Basic contract law governs renewal letters. Contracts are formed when there is an offer and acceptance. You make the resident an offer to renew their lease. Firm offers have no conditions other than for the other party to accept and they cannot be withdrawn. It is either accepted, or dies if it is not accepted by the deadline. If no deadline is specified, the resident can accept the renewal offer up to and including the last day of the resident’s current lease term. If a renewal offer only requires the resident to accept, and has no time limit for acceptance, the renewal offer cannot be withdrawn.
The first step to avoiding renewal letter problems is to tighten down your renewal process. You should be able to flag problem residents so that you don’t send renewal offers to problem residents. If your property management software can’t flag problem residents to prevent the automatic generation of a renewal letter, you should talk to your software provider about adding this feature.
Even if your renewal process is airtight, this still doesn’t resolve the issue of residents who are sent renewals, and then become a problem. A solid renewal letter should meet a number of goals. You should consider drafting your renewal letter so that it does not make an offer, but rather is an invitation to accept offers from the resident. Your renewal letter language should never create an unconditional firm offer. Rather, a renewal letter should be drafted more as a reminder and marketing letter. For example, “we invite you to discuss renewing your lease with us”.
If you make an offer, consider placing appropriate conditions on the renewal. For example, “our offer to renew is open for thirty days, and can only be accepted as long as you are in good standing (not in default), and by executing a new lease”. A good renewal letter should also remind the resident that if they don’t renew, higher month-to-month rates go into effect.
A carefully drafted renewal letter can meet the dual goals of having flexibility of not being locked in to set rates for extended periods, and also effective marketing. To illustrate this point, let’s compare two renewal letter approaches that go out ninety days prior to the end of a resident’s lease. The first renewal letters states, “We invite you to meet with us to discuss renewing your lease. Our current rate for a one bedroom is $700 per month, but rates are subject to change.” The second renewal letter states, “we are offering to renew your one bedroom for $700 per month”.
The first approach is not an offer, but an invitation to discuss a new lease. If the resident becomes a problem, you don’t have to sign a new lease with them. The first approach also creates a sense of urgency on the resident’s part. The resident may conclude that they better get into the leasing office, and get this done, before the price goes up. The second approach creates no sense of urgency, given the human tendency to put things off, the resident will likely put off dealing with renewal as long as possible.
If you to decide to stick with the second approach, it could be strengthened by minor changes. Specifically, the change from “we are offering to renew you” to “we are currently leasing to qualified residents”. If you make this one minor change, you have an out if the resident becomes a problem. You can explain to a troublesome resident that “qualified residents” means residents that are not currently in default of their lease.
If a resident situation blows up, and you want to withdraw the renewal, you should always do so in writing. “Because of the incident, we are withdrawing our offer to renew.” It may not fly legally, depending on the renewal letter that was sent, but it is better than nothing, and often a resident will just accept the revocation.
Also, the renewal of residents with guarantors, or co-signers should always be conditioned on the guarantors and co-signers re-signing as well.
Renewal letters illustrate the constant tension between legally advantageous language and resident friendly documents. Because legally ironclad language can negatively affect leasing, you can’t have a five-page renewal letter written in legalese. On the other hand, overly simplistic renewal letters can lead to unnecessary legal battles and associated costs. With knowledge of the key legal principles that apply to renewals, you should be able to strike a proper balance, and write renewal letters in a resident friendly fashion that also serves the community’s marketing goals and strategies. Finally, fair housing concerns dictate consistency. If a resident becomes a problem after a renewal letter goes out, you don’t have to renew if your renewal letter gives you options. However, you need to follow through and not renew all other residents that have the same or similar issues.
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