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Why You Should Be Charging for Lease Renewals: An ‘Insurance Policy’ for Owners (5 minutes)
Charging a lease renewal fee is essential for protecting property owners from costly tenant vacancies.
This video and article explain why a fixed-term lease renewal acts like an insurance policy, safeguarding owners from losses of potentially thousands of dollars when tenants leave during quiet periods on a non-fixed-term lease agreement.
By securing a fixed-term lease, property managers offer valuable protection and stability, making a lease renewal fee justified and necessary.
Learn how to confidently charge for lease renewals and use proven scripts to handle fee objections effectively.
Many agencies across Australia, New Zealand, and the United States are already charging for lease renewals, but there are still plenty who either don’t charge at all or aren’t charging enough.
Today, I want to explain why lease renewals are like an insurance policy that protects owners from costly issues if a tenant vacates on a non-fixed term or periodical lease during a quiet demand time.
The Hidden Costs of Non-Fixed Term Agreements
Let’s break down the potential costs when a tenant leaves a property under a non-fixed term agreement.
Suppose a tenant gives notice during a quiet period when it’s more difficult to find new tenants, and it takes five to six weeks to secure a replacement.
If the rent is $500 per week, the owner immediately faces a loss of $2,500 to $3,000 due to the vacancy.
Now, add on the cost of a re-leasing fee (typically one to two weeks’ rent) and marketing expenses.
The leasing fee alone may be another $1,000, so now the total cost to the owner is around $3,500 to $4,000. And this doesn’t even account for any other unexpected costs.
- Standard Marketing Fee This fee covers the costs of listing properties on portals. In Australia, you’re likely familiar with the two major portals that charge fees. New Zealand has its own marketing portal costs as well. Make sure you’re covering those costs, and if you haven’t updated your fee recently, ensure you’re adjusting it, as portal charges tend to increase on a regular basis.
Don’t forget to factor in any additional marketing efforts, such as Facebook or LinkedIn campaigns. Always check your local legislation to ensure you can on-charge these costs. - Professional Photos If you’re taking professional photos for listings, you should be charging a fee to cover those costs. It’s a straightforward service, but make sure it’s reflected in your fee structure.
- Video Walkthrough Fee Offering video walkthroughs is becoming increasingly common. If you’re walking through the property with a camera or phone, narrating as you go, that takes time—editing and uploading included. You should be charging for this service, and the suggested fees are detailed in the book.
- Virtual Tour Fee Using high-tech tools like Matterport or 360-degree cameras to create virtual tours can be time-consuming and require expensive equipment. This is another service where you should be charging a fee for the value you provide.
The Protection ‘Insurance’ Value of a Fixed-Term Lease
A fixed-term lease renewal acts like an insurance policy for owners, protecting them from these potential losses.
By locking a tenant into a fixed-term lease, the owner is shielded from the uncertainty and financial burden that can occur when a tenant leaves on a non-fixed lease during quiet times.
You might be thinking, “Darren, properties are renting quickly right now!” Sure, but that won’t always be the case. There will be times when finding new tenants takes longer, and the worst-case scenario I’ve outlined still applies.
It’s important to explain this to owners so they understand that $3,500 to $4,000 in losses is very real during quiet periods, with having to pay for the vacancy period and then pay for the full leasing and marketing costs on top of that (add it up and do your own sums).
Why Owners Should Pay for a Lease Renewal Fee
If the cost of having a tenant vacate on a non-fixed lease reaches $4,000, why wouldn’t an owner happily pay half a week’s rent or even a full week’s rent to renew a fixed-term lease and avoid those potential losses?
Yes, I understand some regions, like New South Wales, have legislation that doesn’t allow certain costs to be recovered from tenants (unfortunately).
But even in places where you can’t obligate tenants to sign a fixed-term lease renewal (like Victoria, New South Wales, or New Zealand), you can still encourage them to do so and sell them the benefits of a fixed-term lease.
Selling the Benefits to Tenants
Even in markets where you can’t force tenants to sign a fixed-term lease (like VIC and NSW), you can still sell them on the benefits.
Explain to tenants that a fixed-term lease gives them protection. For example, if the owner decides to sell the property, a fixed-term lease ensures the tenant has security for the remainder of the lease term.
Encouraging tenants to sign a fixed-term lease benefits both parties—the owner is protected from unexpected vacancies, and the tenant enjoys stability. And when you go the extra mile to secure a fixed-term lease for the owner, you absolutely deserve to charge a lease renewal fee.
How to Justify the Lease Renewal Fee
Justifying the lease renewal fee is easier than you think.
In my book, the PM Fee Scripts Secrets, I provide detailed scripts and justifications that explain the value of a lease renewal fee. The book also covers every possible fee objection you might encounter, like:
• “But the other agent is cheaper.”
• “Can you match your management fee with the agent down the road?”
• “My Sydney agent only charges X.”
You’ll find the exact scripts you need to handle these objections effectively and confidently.
Get the Scripts You Need to Charge What You’re Worth
If you want to start charging for lease renewals and other valuable services, make sure you grab a copy of our book the PM Fee Scripts Secrets.
The book is free—you just need to cover the shipping. We’ve already paid for the printing, so it’s easy to get started.
Head over to StopDiscountingFees.com or visit IGTCentral.com to access all of our books and podcasts.
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