A Guide to the Addendum: Confidently Renew Your Lease Agreement

Defining the Lease Renewal Addendum

A renewal addendum is a document that a landlord and tenant execute to extend a lease agreement beyond its original expiration date. Even though the law classifies it as an amendment, in practical terms it serves as a substitute amendment; a lease renewal addendum does not alter the original lease, but essentially creates a new six or 12 month lease on the property.
A lease renewal addendum, however, is executed simultaneously with the tenant’s existing lease without any changes to the original leasing terms. If the property is rented at $500 a month, for example, upon the expiration of the existing lease, the tenant will begin paying $500 a month for the additional term, which could be as short as six months or as long as a year, depending on the parties’ preferences . Unless you choose to increase the amount of rent charged in the extension, it will be exactly as it was prior to the addendum.
Most tenants will wish for the continuation of the same rental amounts so that they do not have to scour the market for a more affordable rental property. For landlords, extending the existing lease is often easier than creating an entirely new lease agreement, particularly since addendums do not require notarization before they can go into effect.
If your lease agreement has a lease renewal clause that requires a written notice to extend the present agreement, the renewal addendum will help ensure compliance with this provision.

Key Components of a Lease Renewal Addendum

When drafting an addendum to renew a residential lease, either as a tenant or landlord, be sure to include the following critical items:

Both parties’ names. Firstly, the addendum should identify both parties (landlord and tenant) by full name, so there is no confusion regarding who is renewing a lease and whether or not they are legally bound. In that same space, it should clearly name the subject property.
Updated term. State the beginning and ending dates for the new term. This is particularly important if you’ve used an addendum to extend a lease for just a few weeks, which doesn’t always require a new lease, but definitely requires an addendum to the original, yet again binding agreement. Otherwise, the old lease might expire unnoticed and neither party would be legally obligated to re-up for another year.
Updated rental rate. If the old lease had a 3 percent rent increase built in, then state the new rent amount in the addendum. Not only should the new rental rate be included, but so should the mode of payment, at least for the first month or two, in case things vary from their usual course. It’s best to be clear from the get-go that the new rate remains the same whether rent is paid via e-transfer, direct deposit, cheque or any other means regulated by the terms set forth in the lease agreement.
Updated security deposit. In some cases, the landlord may have to return the tenant’s security deposit upon renewal, but then ask for a new deposit upon transfer of the lease. Otherwise, state that the original security deposit will continue to apply and that no further deposits are required.
Updated fee schedule. If there are any updated fees, be sure to include them in the renewal addendum.
Updated terms. This is perhaps the most important item of all, as a renewal addendum is basically an entirely new lease, except for the duration of the agreement. As such, it should completely be rewritten and signed before the lease renewal becomes active.

Advantages of a Lease Renewal Addendum

A renewal addendum is an economical tool to renew a lease agreement without incurring all of the costs that are traditionally associated with a renewal. Since the terms of the original lease agreement continue in effect after the addendum is signed, the landlord does not have to pay recording fees, title search costs, and other expenses associated with the preparation of a new lease agreement.
Another advantage of the addendum is that it does not require the parties to make all of the election decisions that are normally made at the time a lease is initially negotiated. For example, a tenant may want to continue in possession after the expiration of the lease in order to avoid relocation expenses and might not be entirely certain whether its use of the premises as of the time the lease was entered into would be the same after the expiration date of the lease. While these uncertainties might make a tenant reluctant to exercise its option to renew or extend, the tenant may now be able to enjoy the benefits of the extension or renewal provisions contemplated in the original lease by executing a lease renewal addendum.
A recent court decision found that a lease renewal addendum did not affirm the original lease but merely branded portions of it with a later date. While some courts have found that amendments or modifications to a lease void the original lease, others have upheld amendments made without writing. The court stated that the distinction between an amendment and a modification was not essential because the lease was still in existence. Unless the renewal addendum terminated the original lease, it was not required to strictly comply with Minn. Stat. § 513.05 and it was effective without consideration.
The addendum provides the parties with the flexibility to negotiate additional or different consideration for the renewal or extension without having to re-execute the entire lease. By the same token, it saves time since the renewal addendum does not have to be recorded or title insurance obtained.

Tips for Drafting a Strong Lease Renewal Addendum

Once you’ve decided to use a lease renewal addendum, the next step is actually drafting it. Let’s take a closer look at how to prepare a lease renewal addendum in four easy steps.

Step 1: Review the Lease

Before getting started, it’s crucial to read the original lease agreement. You can avoid potential problems by ensuring that the addendum conforms with any provisions relating to lease renewals or extensions. These provisions may place limits on the terms of the addendum or provide a mechanism for approving a renewal. Understand when the renewal can take place. Some may allow it to occur at any time during the original term, while others may only permit it to occur on specific dates.

Step 2: Identify the Necessary Changes

Next, identify the changes that are necessary to the terms of the lease. You’ll generally need to make adjustments to the term and the rental amount. If either party wishes to notify the other of future changes, such as a rent hike, the addendum or renewal agreement is also the ideal time to do so.

Step 3: Confirm Oral Agreement with Both Parties

The next step in the process is to confirm that both parties have verbally agreed upon the necessary changes. It’s important that both parties are in agreement before proceeding to draft an addendum. Doing so can save you time in the future.

Step 4: Draft the Addendum

Armed with the information you have, you’re ready to draft the lease renewal addendum. If you’re unsure of the legal requirements or the proper terminology, consider using an online tool, such as a lease renewal addendum template. Otherwise, drafting the addendum should be a straightforward process.

Common Errors with Lease Renewal Addendums

One of the biggest mistakes landlords make with lease renewal addendums is neglecting to update crucial information about the landlord and tenant. Depending on the length of the original lease, contact details may have changed. The tenant’s employment or ability to pay may have changed as well. These details will be critical when it comes to setting the terms on the lease renewal addendum, which is why it’s important to verify this information before proceeding. Another mistake landlords make when dealing with lease renewal addendums is being vague with the language they use. Make sure to use language that is as specific as possible to get the terms of the renewal agreement across . If the document lacks clarity, it could lead to misinterpretation and confusion. This, in turn, may lead to further legal complications and may prevent the addendum from being enforced appropriately. Landlords should also be careful to avoid referencing other documents in the lease renewal addendum. This is very common when referencing other documents that could apply to the lease, such as any documents regulating the homeowner association, or other rules and regulations. Instead of including such references, state the additional rules and regulations as they apply specifically to the lease renewal addendum. This makes it easier for a judge to rule on the case if landlord and tenant ever find themselves in litigation over the terms of the renewal.

Enforcement and Legal Considerations

The legal binding nature of a lease renewal addendum can slightly vary across jurisdictions. However, as a general rule, once signed such addendums become part and parcel of the original lease and are therefore legally binding upon both the parties involved if entered into. Additionally, the additional term under an addendum may be enforced in several ways, including but not limited to via a lease renewal document (a new lease with previously agreed upon terms as evidence of the renewal), a written endorsement to a lease, and the execution of a lease with an optional renewal clause provision.
For example, when a tenant has been granted a lease in which a renewal is permitted (such as five years after the initial term), the expiring of that initial period will obligate the tenant to execute the renewal. Otherwise, in the eyes of the lease and renewal addendum the tenant may have breached the additional term.
As such, any party to a lease agreement that incorporates a non-conforming lease renewal or lease extension should, to the extent possible, ensure that the lease addendum includes at a minimum the date of expiration, the new term, the stipulated price for the renewal, and entitle the tenant to a lease of similar conditions and terms that will apply throughout the new term. These will not only serve as guideposts for both parties to follow, it will also serve as evidence in the event that either the landlord/landlord is not in compliance with the renewal or have a case against a party that is not in compliance with the lease agreement.

Alternatives to a Lease Renewal Addendum

Alternatively, your lease may allow for a complete new lease between the parties, as an alternative to a renewal addendum to original lease. In this case there will still be several key issues to face. First, there is typically a provision in the "new lease" that has the parties acknowledging the old lease in some way. One reason for this is that several rights may have become vested in the tenant under the lease and the landlord may want to preserve it in the new lease. Furthermore, parties are also entitled to take certain assets (many times the real estate) and use them as an absolute defense to a breach of contract action. Therefore, utilizing the language that both parties acknowledge the old lease in the new lease makes it much more difficult for a breaching party to assert a defense to the breach. Additionally, one must still consider the timing issue discussed above in the addendum section. In the event the issues raised above are handled properly, the default risk is much less in a new lease scenario, and there is no requirement to renew based on a term in the lease. However, there are two noticeable drawbacks with drafting a new lease in place of the addendum. First is that the paperwork is much greater in scope. Second , staff training must occur to insure that institutional knowledge does not leave the company if the only person with knowledge about the addendum leaves. Ultimately, it is necessary to weigh the risks and the reward when it comes to the decision to draft a new lease in place of the addendum.
Month to month terms also serve as an alternative option to renewing your lease. From a contractual liability standpoint, this offers the best option; however, there is less of a guarantee because either party can terminate the lease with less advance notice than a renewal provision calls for. Generally, at-will leases have the notice periods carved out. In South Carolina, the notice is one week at the end of a month to terminate the lease in the absence of a renewal provision, or the period specified in the lease. Again, simply requiring that either party notify the other in writing about the intent to move on to another location provides the best measure for protecting the company if there was indeed a breach of contract. However, as seen with the default risks above, there are still serious issues surrounding the timing of the transaction. Ultimately, the timing and the scope should be analyzed very carefully before any decision process is completed. While there may seem to be a clear cut "best" option, there are many other variables than just timing that are important to keep in mind.