What is a Lease Extension Addendum?
A lease extension addendum is essentially a contract to extend the lease term that has previously been signed. These addendums are often quicker and easier, as opposed to renewing the lease entirely. Consider it an add-on to your existing rental agreement; nothing really changes other than the extend deadline for your stay. In many cases, tenants are perfectly happy in their purchased abode, or want to have the choice to stay a certainty under a just cause evictions notice.
The primary purpose of a lease extension addendum is to prolong a lease term after its original expiration date. The process by which a lease extension is executed may vary depending on the length of the lease, the applicable jurisdiction’s laws, and the specific terms of the original lease. While most lease agreements contain automatic renewal provisions, some do not . A lease extension addendum is particularly useful when the lease being extended is for a short period of time, such as a month-to-month lease.
If you know several months in advance that you intend to renew the lease, it may be in the best interest of both parties to simply draft a new lease for the subsequent term. This will enable the landlord to write a new lease with fresh terms that take into account the current market rate, including rent increases and additional conditions based on regulations that may have been recently passed.
Lease extension addendums are quite common. Many landlords automatically proceed with the addendum without assessing whether to raise the rent or update the lease terms. In most jurisdictions, the statute of limitations for lease extension addendums is six years.
Key Elements of a Lease Extension Addendum
There are several important components that must be addressed in a comprehensive lease extension addendum. First and foremost, a lease extension addendum must identify the parties involved. Include the name of the current tenant, whether it is an individual or a company. Also include contact information for the current tenant. For example, where is the current tenant located? What is their email address? It is equally as important that you identify the landlord (if it is not obvious from the lease) and a form of contact information.
Second, there should be a paragraph indicating that the parties are "amending" the original agreement. The purpose of this is to make clear that the addendum does not create a new contract, rather it merely extends the current lease for a defined period of time under certain agreed upon conditions.
Third, the new expiration date must be stated in obvious terms. Simply delete the old expiration date. There should be no question as to when the lease will finally terminate.
Fourth, any changes to the rent should be clearly articulated. Increases are not uncommon upon a lease renewal, but improvements to property may also impact the amount of rent.
Next, many leases have other terms that automatically roll over, most often requiring the tenant to remove fixtures or other items that were installed for use on the property. Some landlords automatically remove these items for the tenants. As such, the lease should state whether the items will be removed by the tenant or the landlord. If the tenant is to remove the items, a timeline should be in place. Failure to timely comply with such a requirement can result in an automatic forfeiture of the lease through a legal process called an unlawful detainer.
Advantages of a Lease Extension Addendum
The use of a lease extension addendum is not only common but serves an important purpose in the relationship between landlord and tenant in extending the term of the lease. Notwithstanding the mutual agreement of landlord and tenant to extend the term of the lease, neither party can be assured of the enforceability of that agreement unless the parties have an executed written renewal agreement or, as is the case in the overwhelming majority of instances, an executed written addendum.
A lease extension addendum has two major advantages to both landlord and tenant.
A lease extension addendum protects the landlord from later claims by a tenant that the landlord agreed to continue the lease on different terms, such as an increase in rental payments or decrease in physical space that were not specifically stated in an enforceable writing. Similarly, a lease extension addendum protects the tenant from later claims by a landlord for concessions that were not specifically stated.
A lease extension addendum provides certainty to the parties about the length of time and other agreed terms for the extended lease term. As with most long-term relationships, nothing is guaranteed. Yet even in the absence of a validly executed lease extension addendum, long-standing tenants can rest assured that they will be able to remain in the premises for as long as their landlord’s mortgage lender does not object and prove that the lease is invalid due to the tenant’s failure to give timely notice of the exercise of the right to extend or the tenant’s failure to fulfill conditions precedent in the lease (e.g., timely payment of rent, delivery of certificates of insurance, etc.).
A continuously extended lease term does not prevent the landlord from proceeding with a leasing transaction by which it becomes the tenant of a new landlord. A departure from the standard provision giving authorization for subleasing or assignment of a lease "provided that the tenant shall require all transferees to execute and deliver to landlord a written agreement assuming all of the terms, covenants and conditions of the lease" should be carefully considered in negotiating an extension addendum.
A lease extension addendum should consider whether the extension period should be absolute or conditional. A condition may include, without limitation, the requirement that the tenant be in compliance with all existing lease terms and commingling of the tenant’s personal property. An extension for a fixed term instead of a one-year renewal in a month-to-month tenancy provides the landlord the ability to plan for the future, including predetermining the escalation of rent. If the extension period is indefinite or contains other conditional terms, the parties should consider whether the rent should be fixed, increased or decreased and whether the acceptance of any rent past the expiration of the extension period constitutes a renewal of the lease for the same fixed period as the preceding month.
A lease extension addendum provides the parties an opportunity to negotiate other lease terms that will benefit them during the extension period of the term, including assurances that the tenant is not in default of reserve rights under the lease.
How to Create a Lease Extension Addendum
Before the lease extension formula can actually be used, a lease extension addendum needs to be drafted to modify the current lease. Substantively, there will have to be additional sections detailing the price of the cost of the lease extension, the lease extension period, and the specific manner in which the cost of the lease extension should be paid. These are critical components of any lease extension addendum as these are the three items which should be agreed upon by the tenant and landlord.
Formally, the addendum may be referred to as a lease extension agreement, lease extension letter agreement, lease extension option, or a lease renewal extension.
To ensure that a lease extension addendum is legally binding, it should be signed by both the tenant and the landlord since it requires both parties to perform obligations under the addendum. Not doing so can present issues if the lease has expired. Since that deadline is of utmost importance, it is a good idea to include a clause which extends the deadline necessary for the landlord to find a new tenant or to make repairs if a suit has been filed. This can ultimately protect both parties from losing out on a mutual benefit while the court proceedings occur.
Aside from setting the deadlines for performance, a lease extension addendum should be clear as to whether the existing lease terms are consistent and binding during the lease extension. Any portion which will be amended or will not be extended need to be specifically detailed in order to prevent further disputes in the future.
Additionally, a lease extension addendum should clearly outline the manner in which disputes should be addressed. In some cases this may be through mediation or arbitration.
Ultimately, the language used and required to prepare a lease extension addendum is critical to ensure that the ideal relationship between the tenant and the landlord is set. While there are no restrictions on how a document should be prepared, keeping it simple, direct, and as clear as possible is the best approach.
Challenges and Solutions
A significant number of lease extension addendums that I draft or review contain a few common issues. The examples below are the most commonly encountered issues, and some suggested "solutions" to the problems. Failing to follow some of these suggestions can lead to lawsuits or additional expenses.
The first issue I see is an inaccurate or too vague description of the lease that is being extended or entered into (usually on the first page). The problem with this is that it results in a misunderstanding of how the terms of the extension are supposed to apply, or which existing terms apply. To solve this issue, include a copy of the lease as an exhibit to the addendum so that anyone can read your intentions. I would even recommend including a copy of the entire lease, not just the relevant pages (i.e., the pages that contain the paragraph number referenced in the new lease extension addendum). By ensuring that the entire lease is attached to the addendum, no one will guess as to which lease should be referenced, or the chances at least will be highly reduced. Also, to prevent ambiguity, the reference to the lease should be extremely precise, rather than a vague reference to a section or paragraph number that may eventually end up not existing in the lease.
Another common issue is failing to comply with local regulations, such as rent registration. A suggested "solution" is to thoroughly research the local municipalities where your lease property is located and your rights under local law.
I also find one common issue to be the creation of a "Frankenlease," which is a lease that consists of the original lease and all of the extension addendums . The issue with the "Frankenlease" is that the extension addendums may not adequately reference the prior lease, or may reference the incorrect paragraphs from the lease. This can especially be the case with older leases or boilerplate leases that have been used by the owner for many years. A "solution" to this issue is (once again) to make sure that other potential leases are attached as exhibits, and to require that all new leases be signed and current.
Another common issue I see is "missing" signatures. Sometimes not all of the tenants or owners sign the addendum. You could solve this if you have a lease that causes the rental license to go inactive when the last original tenant vacates the apartment, because then you can sign as the new tenant and/or owner. However, if the lease does not contain such a provision, then you will have difficulty leasing out the apartment because all original tenants must sign the lease. Therefore it is important that you ask all parties to sign the extension.
The next common issue is that sometimes landlords and tenants do not understand the difference between tenant and owner. The solution to this is to ensure that you create some sort of definition section that clearly sets forth who is a tenant and who is an owner, and what rights they have.
My final suggested "solution" is that you always have an attorney review your lease extension addendum (and the lease itself) so that you can rest assure that you have a "good" lease extension addendum. I hope you find these "solutions" useful.
Legal Aspects of a Lease Extension Addendum
In the context of law, a Lease Extension Addendum (LEA) is a legal agreement that permits present tenants with a lease agreement to continue to live in the premises or property after the expiration of the original lease term. In most cases, when the LEA is drafted particularly, it will give the tenant the rights to further lives in the property for an additional or defined period under the same terms and conditions as stated under the original lease agreement. A landlord who wishes to extend the current lease of a tenant must draft an addendum that highlights the terms and conditions agreed upon by both the tenant and landlord. Lawfully, a tenant does not have the obligation to renew a lease agreement once it expires and therefore, if the landlord wishes to continue the tenancy, then it must be reasonable and lawful to do so. The tenant and landlord can agree on the following areas when drafting the LEA: An LEA has several legal implications such as: It is highly recommended that the landlord enforce the provision of the guarantee of the LEA, and in addition, the provision of state specific residential laws should ensure that the tenant is notified with sufficient time period prior to the expiration of the Leases despite if it is willing to extend the term or not.
Example of a Lease Extension Addendum
Further, to effectuate the intention of the parties as herein defined, the parties hereto agree as follows:
- The Lease is hereby extended for a period of _______ months from its present expiration date of ___________________.
- The new expiration date shall be ______________, after which time this Lease shall terminate and be null and void .
- Except as herein modified, the terms and provisions of the Lease shall remain in full force and effect for the extended period of time.
- This Addendum may be executed in counterparts and when signed by both parties shall constitute a binding agreement.