What Is a Lease Extension?

Lease Extensions Explained in Less Than 5 Minutes

Definition
A lease extension is a legal agreement that extends the terms of an existing lease. Lease extensions are commonly used in rental agreements, but the term can also apply to auto leases.
A driver makes adjustments on a dashboard.
Photo:

EMS Forster Productions / Getty Images

A lease extension is a legal agreement that extends the terms of an existing lease. Lease extensions are commonly used in rental agreements, but the term can also apply to auto leases.

A lease extension should state that the original agreement is being extended, name both parties involved in the contract, and state when the lease begins and ends. Understand how a lease extension works and how it compares to other options at the time a lease ends, so you can decide if a lease extension is right for you.

Definition and Example of a Lease Extension

A lease extension is a legal agreement that extends a current lease beyond its original term.

Note

When the term of a lease is about to expire, you have a few options for what to do next. You can let the agreement expire and give up access to the asset you’ve been leasing. Another option at your lease’s end is to renegotiate the terms into a new lease agreement, which is known as a lease renewal.

If you’re happy with your current lease, you may opt for a lease extension. This means you extend the terms of the current lease agreement, although the additional time frame is typically shorter than the original time frame.

For example, let’s say you’re renting an apartment and your current lease is set to expire in the coming months. If you’re happy with the apartment and your monthly rent, you may want to extend the rental agreement for a little while longer.

If you do extend the lease, the other terms of your original rental agreement will typically stay the same. However, the new, extended portion of the timeline may be shorter than your original least term. For example, your original lease may have been for a year, but a lease extension may be for four months.

Note

Even though the other terms of your lease will stay the same, consider consulting a lawyer to review your lease extension.

How a Lease Extension Works

A lease extension occurs when a lessee and a lessor extend the terms of a current lease agreement. It’s a good option when both parties are happy with the current terms of the lease.

There are many reasons you may want to opt for a lease extension, whether you are a lessor or a lessee. Extending your current lease as a lessee means you can put off searching for a new apartment to rent or a new vehicle to lease, both of which can be time-consuming and entail extra costs.

Lease extensions for apartments can be helpful if you need a little more time before relocating. For example, let’s say you found a new apartment, but it won’t be move-in ready for another six months. Extending the terms of your current lease gives you more time to prepare for the move.

Note

A lease extension can also benefit landlords because they can delay spending the time and expense looking for another tenant. With a lease extension for a current tenant, a landlord will have more time to find a new tenant.

If you’re not happy with the terms of your current lease, you may opt for a lease renewal instead. With a lease renewal, you sign a new lease for the same asset, with similar but different terms than the original agreement. But the new terms, such as a different payment amount, could vary.

Pros and Cons of a Lease Extension

Signing a lease extension has both advantages and disadvantages to consider.

Pros
  • Shorter process

  • Cost savings

  • Consistency

  • Flexibility

Cons
  • Shorter time period

  • Keeps everything exactly the same

Pros Explained

  • Shorter process: Lease extensions are usually faster to complete than the original lease since you’re not renegotiating the terms of the lease.
  • Cost savings: It’s usually less expensive to extend the terms of your current lease since your rent won’t increase. And you don’t have to spend the time and money to look for a new place to live.
  • Consistency: If you’re happy with the terms of your current lease, a lease extension helps maintain them.
  • Flexibility: If you plan to move but need a little more time, a lease extension can provide more flexibility while you search for a new place.

Cons Explained

  • Shorter time period: Lease extensions are meant to be temporary agreements, so they are typically shorter in length than the original lease. Therefore, they don’t provide the security you may want in a lease agreement.
  • Same terms: If you’re unhappy with the terms of your current lease, such as the amount of payment, extending a lease does not change them.

Key Takeaways

  • A lease extension is a legal agreement that extends the terms of your current lease.
  • Lease extensions are commonly used in rental agreements, but they can also be used to to extend the length of leases for other assets, such as cars.
  • If you extend the terms of your lease, the new time frame may be shorter than the original time frame.
  • A lease renewal is different from a lease extension because you sign a new contract with different terms, such as a new monthly payment.
  • A lease extension can be a good option if you’re happy with all the terms of your current lease.
Was this page helpful?
Sources
The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. Consumer Financial Protection Bureau. “Renegotiations, Extensions, and Assumptions.” Accessed Feb. 3, 2022.

  2. National Apartment Association. “3 Ways to Drive Renewals.” Accessed Feb. 3, 2022.

Related Articles