One of the basic steps to take if you’re investing in a house rental is determining how you’ll lease it. In planning for the rental, you already must decide if it’s for a fixed-term tenancy or a periodic lease.
Each of these rent agreements has its pros and cons, with their respective features also fit for varying types of renters. With this in mind, let’s dig into the details of fixed-term leases and periodic tenancies.
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What is a fixed-term lease?
A fixed-term tenancy is exactly what it says: it covers a duration with definite start and end dates. This lease period is specified in the tenancy agreement which also sets the timing and amount of any rent increases.
The duration that an agreement covers can be short-term or long-term. For the short-term lease, a landlord and a tenant can sign a 60-day or 90-day lease agreement.
Leases longer than these are set from six months up to one year. Some landlords also chose to be varying durations and offer eight-month or 10-month tenancies.
Because of this elbow room on duration setting, landlords and tenants generally favour fixed-term tenancy. For landlords, in particular, it allows better planning and enables them to avoid a rental vacancy when demand is low.
Advantages of a fixed-term rental
Besides the planning advantage to landlords, a fixed-term rental offers other benefits to them and their tenants as well. Foremost, both parties enjoy the security of tenancy for a set time period.
Other benefits are available to landlords in a fixed-term tenancy, and these include the following:
- Fixed income during the period of the tenancy
- Flexibility in scheduling time and budget expenses for things like repairs and maintenance
- Compliance with certain landlord insurance requiring fixed-term leases
- Rent increases can be included in fixed-term tenancy agreements
- Greater control on the lease term which can be set to end at a time when the rental market is on an upswing
Fixed-lease constraints
Landlords though have to contend with one major disadvantage of a fixed-term lease agreement. They cannot end the tenancy before its term expiry unless the renter agrees.
Hence, the landlords face a constraint if they need to sell their property quickly. They may also have to wait for the tenancy to end if they want to remodel or renovate the property.
If you’re a landlord with tenants on a fixed-term lease, you will need to follow certain rules in increasing rent. These guidelines on the timing of rent increase vary from state to state and are as follows:
- Australian Capital Territory—8 weeks’ notice but not within the first 12 months and only once per year for the existing tenant
- New South Wales—60 days’ notice for fixed terms over 2 years without needing to specify in the agreement
- Northern Territory—30 days’ notice if a rent increase and its amount or calculation method are specified in the tenancy agreement. Any rent increase should be after 6 months from the start of the tenancy or the date of the last increase.
- Queensland—2 months’ notice if a rent increase and its amount or calculation method are specified in the tenancy agreement. Any rent increase must be at least 6 months after the last increase.
- South Australia, Tasmania, and Victoria—60 days’ notice if the rent increase and its amount or calculation method are specified in the tenancy agreement. Any rent increase should be after 6 months from the start of the tenancy or the date of the last increase.
What is a periodic agreement?
A periodic tenancy is a month-to-month rental agreement in effect until either the landlord or the tenant gives termination notice. There’s also the possibility of a fixed-term agreement automatically becoming a periodic lease.
This happens if the initial fixed term ends, and you and your tenant didn’t set a further fixed term but also didn’t give a termination notice. A month-to-month agreement then becomes automatic and will continue until either you or the tenant gives a termination notice.
Like the rent increase guidelines mentioned earlier, the rules for the advanced notice of termination vary from state to state. Here’s how it goes for tenants’ and landlords’ respective termination notices in each state.
Australian Capital Territory
- Tenant – 3 weeks’ notice
- Landlord – 14 days to 26 weeks
New South Wales
- Tenant: 14 days’ notice if the landlord breaches the agreement or the agreement period is ending
- Landlord: 14 days’ notice if the tenant is 2 weeks or more in arrears; 30 days if the agreement is ending or if the premises have been sold after the fixed term has ended 14 days; 90 days if the fixed-term period has expired and no new agreement has been signed
Northern Territory
- Tenant: 14 days’ notice at the end of a fixed tenancy
- Landlord: 14 days at the end of the fixed tenancy; 42 days for a periodic tenancy
Queensland
- Tenant: 14 days
- Landlord: 2 months for a fixed-term or periodic agreement
South Australia
- Tenant: 21 days’ notice or a period equivalent to a single period of the tenancy, whichever is the longer
- Landlord: generally 60 days’ notice; 7 days’ notice if rent is in arrears more than 14 days or breach of contract; 90 days with no reason given
Tasmania
- Tenant – 14 days’ notice
- Landlord: 14 to 28 days
Victoria
- Tenant –14 to 28 days
- Landlord – 90 days
Western Australia
- Tenant: 21 days
- Landlord: generally 60 days; 30 days if the property is sold and the contract requires vacant possession; 7 days’ notice on the breach of the rental agreement after the tenant fails to rectify the breach after a 14-day written notice
Periodic tenancy pros and cons
Adopting a periodic lease for your rental allows you more flexibility than a fixed-term lease. You can ask your tenant to vacate your rental at any time, as long as you follow the days’ notice your state requires.
This advantage is important if you want to move into the property yourself or sell it. You can promptly undertake renovations on it to boost its market value.
The disadvantage of a periodic tenancy though is that you run the risk of maintaining a vacant rental. Your tenants can as easily seek other rentals, especially if your property is in a competitive market area.
A periodic tenancy may not work well if you rely on the rental property’s income to pay for its mortgage.
Both a periodic lease and a fixed-term agreement for a rental has pros and cons. The choice of either will depend much on your rental’s location and market, as well as your investment budget and objectives.
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