How Does a Landlord Prepare for The Cost Of a Tenants Vacancy?
Preparing For a Vacancy
Sooner or later, ready or not, a landlord will need to deal with a vacancy. Filling rental vacancies with minimum stress requires some pre-planning on the part of the landlord to anticipate and prepare for this eventuality.
Timing of vacancies is not always controllable by the landlord; however, planning on how to handle vacancies, including having adequate related clauses in the lease agreement, is always under the landlord’s control. Accordingly, by having a plan, the landlord may ease some of the stress and minimize downtime and expense in filling vacancies.
In a previous article we covered the subject of moving tenants in and stated that “a good beginning for a new tenancy starts with clear understanding of the legal rights and obligations of both parties.” As might be expected, a good ending also requires that the rights and obligations of both parties are understood and observed when the tenant is nearing the end of occupancy.
Tenant’s Notice of Intent to Vacate
Written notice to vacate is a requirement by law in some states. However, lease agreements should always include a clause that requires the tenant to give written, specific notice of intent to vacate at the end of the lease term. Such notice minimizes the chances of misunderstanding or misremembering the important details by either party.
Telephone calls, brief notes from the tenants or passing conversation between landlord and tenant can serve as informal notices of intent to move-out. However, the landlord should follow up with a request to the tenant for formal written notice, preferably a “Notice of Intent to Vacate” form that is best provided to the tenant at lease signing, during move-in orientation, or at some later date well in advance of the lease expiration date. Providing the form greatly reduces the chance for ambiguity or assumed flexibility. Neither landlord nor tenant want any surprises or delays during the final days of the lease term when stress levels are usually already at a higher level. The landlord will want to start as soon as possible to begin clean-up and repair and the tenant is under pressure to coordinate his move and perform according to his ending lease and a new lease or home purchase elsewhere.
An adequately written notice is of great benefit to the landlord should the tenant not move-out as planned. The tenant, perhaps through no fault of his own, may be held up at the last minute because his new residence is not ready as scheduled and want/need to stay over a few days. The landlord having anticipated the move-out date may have, in spite of the risk, signed a lease with a new tenant and promised a set move-in date for the new tenant that he cannot now deliver. The new tenant may choose to sue the landlord for default of possession date and the landlord can then in turn file suit against the holdover tenant for failing to move-out as noticed. The written notice will be of significant value in proving the landlord’s case in court.
It is best to provide lease clauses that provide for penalties upon holding over, usually significant increases in rent for any holdover period. If a replacement tenant has not signed a lease before the holdover became known and the tenant was previously satisfactory, it may be possible to simply extend the lease period somewhat with a reasonable significant rent increase.
The written notice signed by the departing tenant will also help convince the tenant that he/she should make other temporary arrangements regarding housing so as not to delay any pre-lease replacement tenant’s move-in. When there is not a waiting replacement tenant, the departing tenant will probably be less likely to argue about whatever rent the landlord demands for a holdover period.
Landlord’s Notice to Tenant of Non-Renewal of Lease
In most jurisdictions, a landlord has the option, with proper notice to the tenant, not to renew or extend the lease. Except for very few jurisdictions, the landlord does not usually need to provide the tenant any reason for non-renewal. When a reason is not required by law, it is almost always better to not provide a reason, as an improperly stated reason could give rise to a claim of a fair housing violation.
The lease agreement should have clearly stated the length of the lease term and specifically the actual end date. The agreement should also have stated the procedures related to vacating the property – for example, the tenant’s notice as discussed above, a walk-thru inspection, not leaving personal property, and turning in keys.
Some landlords may think it unnecessary to provide additional notice to the tenant that the lease term is expiring on a certain date and such notice is not required by law in most jurisdictions. However it is of value to the landlord to do so because it eliminates the tenant assuming he/she can remain as a month-to-month tenancy, provides proof that the tenant did not simply forget, and will serve as a record that the landlord does not wish to renew the lease.
At the end of the lease term (expiration) the tenant usually has no legal right to occupy the rental premises unless prior arrangements have been made. If the tenant stays on without the landlord’s permission after the expiration of the lease, the tenant becomes a holdover tenant. Despite the expiration of the lease, in order to remove the holdover tenant from the property, the landlord in most states must serve the holdover tenant with a notice to vacate the property, stating the date upon which the tenancy ended. If the tenant does not vacate by the end of the required notice period where the property is located, the landlord can file an eviction lawsuit. Some states do not require a notice to a holdover tenant and allow the landlord to immediately file an eviction lawsuit upon expiration of the lease.
Most month-to-month tenancies can be terminated with 30 days written notice to the tenant. However, as a state may require a longer notice period for certain tenants – e.g., those who have been occupants for at least a specified period – landlords are advised to consult their state’s landlord-tenant law for actual specifics. More information regarding month-to-month leases can be found in our “Managing Income Properties” eCourse and in various Mini Training Guides.
Market Surveys
Once a landlord is fairly certain a tenant will be vacating, it is time to update information regarding the current rental market. Real estate leasing is subject to market forces of supply and demand. Changing conditions in the economy, changing conditions in tenants’ needs and wants, and effects of life events will have significant impact on the landlord’s ability to fill vacancies.
Setting the asking rent, security deposit, and other terms that will be asked of new tenants is crucial for minimizing the vacancy period and for obtaining well qualified tenants.
A market survey is the first line of defense against the costs of filling vacancies. Supply and demand for rental units and in particular, for your specific type of property, its condition, and its location will have a significant impact upon your ability to attract qualified applicants and to command market rents.
Periodic research and analysis of general rental market conditions in your area is required to adequately assess the impact of supply and demand, affordability, and competition on your income properties now and for the near future. As conditions change, the landlord can adjust his rents and, if necessary, his qualification criteria, in order to stay competitive with similar properties in his market area.
Summary
Utilizing good procedures related to the end of a tenancy can eliminate or at least minimize problems when the existing tenant is expected to leave and can minimize the cost of the vacancy.