Justifying the Lease Renewal Fee (Part One)

Tuesday, December 05, 2023

This article has been created in two parts because of the depth of content.

If you are not charging half a week to one week in rent as a fee for renewing a fixed-term lease, we urge you to read on…

Whether you charge nothing for this fee, or a small amount, getting a substantial fee for this service is quite easy to justify with prospective or current clients.

You can charge a solid lease renewal fee even when your competitors charge nothing to very little!

And we will show you how!

Step One: FIRST Understand the Cost of a Non-Fixed Term Lease

Firstly, you must understand that there is a BIG difference between a payout for a landlord (what they can charge a tenant) in the case of a tenant breaking a fixed-term lease, compared to the amount that can be claimed back from the tenant should they simply give notice on a non-fixed term lease (a periodic lease).

If a tenant gives notice and breaks a fixed-term lease (depending on your state legislation) you can charge rent until a new tenant is secured, part or full letting fees, and advertising/marketing costs and other costs as well, depending on what other fees you might charge.

However, we can all agree that a landlord is far better off with a tenancy on a fixed-term lease financially than if the tenant gave notice on a non-fixed (and in this case all you can charge a tenant is rent to the end of their legal period of notice).

For example, let’s say you can claim back from the tenant on a fixed-term lease your letting fee and marketing costs- what does this add up to in $$?

$500, $750, $900? Only you can work this out!

Plus add on the rent loss factor of possibly several weeks rent loss (yes, calculate this in $$), it isn’t hard to see that this can add up quite considerably.

From this point, we can see that a landlord with a tenancy on a fixed-term lease is far better financially than a non-fixed lease.

Step Two: Understand the Cost of Tenant Default

If a tenant defaults on their rent during a fixed term or a non-fixed term, the two scenarios are played out completely differently when it comes to making a landlord insurance claim.

The amount that can be claimed back depends on the insurance company that is providing the cover (yes, you need to have quality landlord insurance in place for this to work for the landlord).

WARNING- It must be said that there are landlord insurance policies available, supplied by some financial institutions that will completely deny a claim should a tenant default in rent on a non-fixed term policy!

Again, another compelling reason why a tenant needs to be kept into a fixed-term lease!

Part Two- Be sure to look out for part two of this article as we reveal a great script to use when a landlord says

“Why are you charging this fee when the other agent doesn’t charge anything (or only charges $X)”
and also concluding with an easy formula on how you can get better fees overall!


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