As an investment owner, there are two leasing options for your residential property. Deciding which tenancy agreement best suits your needs will depend on your plans for the property.
If you are looking for financial security and a guaranteed income, a fixed term tenancy might suit you best. Though, if you are looking at doing major work and changes to the property or moving into the property yourself, a periodic tenancy may be a better alternative.
A fixed term tenancy is an agreement for a set amount of time, allowing you to rent the premises with a specific start and end date. The terms are set out in a lease agreement, providing both yourself and the lessee with more certainty and security.
Once the initial term of the agreement ends you have the following options. You and your tenant can either agree to a further fixed term lease or terminate by giving 30 days’ notice of intention not to renew. Alternatively, if a further term isn’t set, the agreement reverts to a periodic agreement automatically.
A fixed term tenancy includes financial security and a fixed income for the period of the agreement. This will help in allowing you to forecast or budget any expenses accordingly, while also providing the opportunity to include rent increases in the agreement.
The downside, if your circumstances change and you need to end the tenancy, you can only do so if your renter agrees. Although you can evict disruptive and disorderly tenants who do not pay their rent, damage the property or sublet the premises without approval.
A periodic tenancy has no predetermined finishing date and is a month-to-month agreement. It can be a written or verbal agreement, with rent payable weekly, fortnightly, monthly or any other agreed period.
The agreement continues, with the same agreed upon terms until either the lessor or tenant give the correct notice in writing. If the tenant is terminating the agreement, they will need to give 21 days’ notice in writing, in the case of the lessor terminating the agreement they will need to give 60 days’ notice or if the property is being sold and is subject to vacancy 30 days’ notice must be given. Alternatively, termination can occur through a court order, though this will be specific to the situation.
The advantage of a periodic agreement means greater flexibility as you can dictate when you want to end the agreement, this may be due to bad tenants or your circumstances have changed. On the other hand, your tenant also has the same flexibility to end the agreement with a shorted notice period and is not locked into a longer contract. Due to this, you may find yourself with a vacant property and no rental income. Though if the tenant’s circumstances change it is easy to change their lease from periodic to a fixed term lease.
To summarise if you are looking to ensure your investment is secure with guaranteed income a fixed term agreement is for you. If on the other hand you are looking to undertake works and renovations with increased flexibility on your investment a periodic would be better for you.