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What is a lease extension?
A lease extension is an agreement between the person leasing a property and the owner to extend a lease, usually on a month-by-month basis at the same monthly payment. A lease extension could apply to an apartment lease, a commercial property lease, or even to a vehicle lease where for some reason it’s in the best interest of both parties to agree to a temporary extension of the lease. A lease extension is different from a lease renewal.
A lease agreement is a formal contract between two parties allowing the lessee to occupy and use the property for the period of the lease. While often used interchangeably with the term rental, a lease generally refers to long-term occupancy that could vary from six months to several years. A lease agreement is a contract covering the monthly lease payments and how the property may be used, whereas a rental agreement is often less specific and normally restricted to payment terms only.
Some leases have clauses that permit the renewal of the lease at the end of the period, while others assume that the tenant will move out. The lease agreement will specify the monthly rental that the tenant or lessee has to pay, and this is normally fixed for the duration of the lease. While the lease is in force, the landlord cannot change the terms of the lease, nor evict the tenant unless the tenant is in default of the terms of the lease.
When the lease expires, the landlord and tenant have three choices:
- The tenant moves out.
- The tenant and landlord renegotiate the terms of the lease and renew it.
- The tenant and landlord agree to a month-to-month lease extension.
Lease extension example
The lease on Nancy’s apartment is coming to an end. Although Nancy has purchased her own apartment, she has decided to renovate it and this means she needs to stay in her leased apartment for another three months. She approaches her landlord and asks for a lease extension, which he agrees to because drawing up a new lease for three months does not make sense.
Are you leasing property while saving to buy your own home? Read these tips from Bankrate for first-time homebuyers.