On the long list of fees you’ve reviewed when enrolling in a property management service, you noticed a lease renewal fee.

As its name suggests, you, as the property owner, pay this fee to your property manager when your tenants are seeking a lease renewal.

In terms of property management services, the fees often amount to a week’s worth of rent plus GST.

Stick around to navigate the details of lease renewal fees and how they impact property owners and tenants.

Defining a Lease Renewal Fee

Lease renewal fees refer to the charges imposed by a property management company when a current renter decides to extend their lease agreement for an investment property.

These fees are typically paid by the property owner, also known as the landlord. This fee can either be a flat rate per unit or a percentage of a month’s rent.

What Is the Purpose of a Lease Renewal Fee?

While lease renewal fees might feel like an additional cost, they serve a valuable purpose for property owners like you. Here’s a brief rundown of the services offered with the lease renewal fee.

Keeping in Touch with Tenants

When it’s time to renew a lease, your property manager reaches out to your current tenants ahead of time. It isn’t just a formality – it’s a chance to hear from your tenants if they want to extend their stay.

It’s all about maintaining a good relationship with those reliable tenants who pay on time and treat your property well.

Staying Updated on Market Trends

Think of it like staying in the know. Property managers keep a close eye on the rental market, trends in multifamily housing, and what your competition is charging.

It helps them figure out the sweet spot for rental rates that are both attractive to tenants and profitable for property owners. In the long run, this can mean more money in your pocket.

Offering the Right Deal

If there’s a rent increase on the horizon, your property manager handles all the details. They draw up new lease agreements that reflect the new rent rate and communicate these changes to your tenants.

It gives them a heads-up and the option to renew at the new rate or explore other options. Sometimes, property managers even sweeten the deal with incentives to make renewing more appealing.

Handling the Paperwork

Your property manager is responsible for creating the new lease agreements, making sure they get to the right tenants, and handling all the paperwork. It makes life easier for property owners and tenants alike.

Lease Renewal Fee in Queensland

In Queensland, lease renewal fees typically cost around one week’s rent plus Goods and Services Tax (GST). Nonetheless, that might not be the case for other property management firms around Australia.

Common Payment Structures for Lease Renewal Fees

In several parts of Australia, lease renewal fees are incurred differently. They could amount to a straightforward flat rate fee or a percentage of the tenant’s rent.

Percentage-Based Fee

Some firms structure their fees as a percentage of the new monthly rent, often lower than what they charge for a new lease. However, some may charge up to 100% of a month’s rent for the renewal. In most cases, it’s usually between 25% and 75% of the rent.

Flat Rate

Other property management companies charge a few hundred dollars per lease renewal to cover their time and coordination efforts. On average, it could be anywhere between $250 to $500.

No Fee

Alternatively, your property management company might not charge a lease renewal fee at all. Some see it as a customer service expense or include it in your regular monthly fees.

Benefits of Lease Renewal Fees

Check out the benefits of paying the lease renewal fees below.

Cost Savings

Lease renewal fees can help cut down expenses associated with turnover. By adjusting the rent to market value while retaining good tenants, you increase your monthly income without spending on finding new renters or major property overhauls.

Mitigating Vacancy Risk

Vacant units can be a financial drain. With no income, you’re still responsible for mortgage, utilities, like separate water meter charges, and other expenses. Plus, vacant units are more vulnerable to vandalism or break-ins.

Time Efficiency

Lease renewals save you time compared to the exhaustive process of finding new tenants, including advertising, assessing applications, and screening applicants. With a lease renewal, you skip all of that.

Continuing with Reliable Tenants

Renewing a lease with a responsible and timely-paying tenant provides a sense of certainty. You know the tenant, and they know the property, reducing the risk of issues.

Drawbacks of Lease Renewal Fees

Here’s what you can consider when it comes to lease renewal fees.

Renovation Requirements

Sometimes, property values can benefit from strategic upgrades. Renewing a lease can hinder these upgrades as it’s challenging to renovate a unit with someone living there. Using the vacancy period to complete renovations and attract higher-paying tenants might be the better choice.

Problematic Renters

If your current tenant consistently pays rent late, violates lease rules, or is generally troublesome, renewing their lease might not be in your best interest. Finding a more dependable tenant when the lease expires could be a better option.

Understanding Lease Renewal Notices

In regard to lease renewals, understanding the process is crucial for both property owners and tenants. Here’s a quick breakdown.

Periodic Lease

If your property is rented out periodically, there’s no need to provide a lease renewal notice. The tenancy continues under the original terms and conditions until either you or the tenant decide to terminate it with proper notice.

Fixed-Term Lease

On the other hand, if you’re operating under a fixed-term agreement and want to extend it, your property manager should send the tenant a renewal of lease letter at least two months before the current lease expires. This letter serves as official notice of the upcoming renewal.

The new agreement can include different terms and conditions compared to the original lease. Within this letter, your property manager can communicate any proposed changes, such as rent increases or modifications to other conditions.

Requirements of Lease Renewal Notices

When preparing a lease renewal notice, it should include the following essential elements:

  • In Writing: The notice must be provided in written form to ensure clarity and documentation.
  • Rented Premises Address: Clearly state the address of the rented premises.
  • Lease End and Start Dates: Specify the date when the existing lease will end and when the new lease will commence. This helps both parties understand the timing.
  • Agreement Length and Type: Indicate the length and type of the lease agreement, whether it’s a fixed-term or periodic lease.
  • Contact Information: Include contact details for both the property owner and your agent to facilitate communication.
  • Rental Price: Clearly state whether the rental price will remain the same or if there will be an increase. Transparency regarding rent changes is crucial.
  • Terms and Conditions: Outline whether any other terms of the lease will remain unchanged or if there will be modifications. This includes any alterations to rules, policies, or responsibilities.
  • Response Deadline: Provide a deadline date by which the tenant needs to respond to the renewal offer.

Lease Renewal with Rental Increase

Renewing a lease with a rental increase involves a few key steps and considerations. First off, if you’re planning to raise the rent but still want your current tenant to stay, it’s crucial to provide written notice at least 60 days before the increase takes effect.

This notice is usually given at the beginning of the new lease term, ensuring your tenant has ample time to adjust their budget or decide on their next steps.

Keep in mind that, unless your tenancy agreement has an additional clause allowing for more frequent reviews, you can typically seek a rent increase only at the end of the lease term.

For shorter leases or periodic tenancies (month-to-month), you usually cannot request a rent increase more often than every six months.

In some regions, there are official forms you must complete to notify your tenant about the rent hike. Tenants also have the right to challenge the increase if they believe it’s unfair or excessive. 

They can seek a rental assessment from the relevant governing authority within 30 days of receiving the notice. Ultimately, it’s up to a tribunal to decide whether the increase is justified.

Renewing a lease with a rental increase is a process that requires clear communication and adherence to local regulations. All of which can be provided by a property management service.

Key Takeaways

In conclusion, lease renewal fees are a significant aspect of property management. They typically amount to a week’s worth of rent plus GST in the Queensland area.

The payment plays a major role for landlords and tenants in terms of the rental process. It ensures a seamless transition to a renewal lease, thanks to the property manager’s services. 

You’re essentially paying for the administrative, real estate market knowledge, and tenant communication.