As a landlord, you have a lot of different things to consider when taking on new tenants – including the type of tenancy agreement you want to offer.
Essentially, there are two types of different tenancy agreements: fixed and periodic.
If you’re relatively new to property, it can be confusing to know which one might be better for your situation.
Here is your “cheat sheet” outlining everything landlords need to know to better understand fixed and periodic tenancy agreements:
Fixed tenancy agreements
A fixed-term agreement runs for a predetermined amount of time.
They’re most often offered for time spans of six or 12 months, and they’re generally popular with both tenants and landlords, due to the stability and peace of mind it can provide for everyone involved.
Landlords will feel more secure knowing that you’ve got a fixed amount of rental income for a set period of time, and the tenant is secure in the knowledge that they have a stable home for a set period.
What’s more, you can also write potential rental increases into the agreement, which is something you can’t do under a periodic tenancy.
While a fixed agreement might sound like the best and most stable choice to make as a landlord, there are a few downsides to it to be mindful of.
Fixing the lease and the rental price for a term can put you at a disadvantage to any market forces that might see rents rise during the agreement.
It can also be difficult to remove a tenant if they aren’t the best fit or begin causing problems.
The inflexibility of a fixed-term agreement can also be of detriment if you find yourself in a situation where you have to suddenly sell the property, as the tenant legally has a right to stay in the property until the conclusion of the rental agreement.
This would limit your sale market to fellow investors, though there are some creative solutions you could entertain – such as offering the tenant a small “moving fee” to leave the premises should the property sell to owner-occupiers.
Periodic tenancy agreements
A periodic agreement is one that runs from week to week or month to month.
Periodic agreements don’t have an end date, and as such there is a lot more flexibility around the decision to end the tenancy.
These types of tenancies usually occur when a tenant has reached the end of a fixed tenancy lease and keeps renting the property on a periodical agreement.
The tenant simply continues paying their rent on a weekly or monthly basis as usual.
There are several aspects to consider with a periodic lease.
If you have a really great tenant that you’d like to keep in your property, it can give you some peace of mind to lock them into a fixed-term contract, so you don’t lose them without fair warning.
A periodic contract also won’t give you the security you might need in terms of income, because it’s liable to change quite quickly and unpredictably.
Furthermore, given that the tenant can choose to terminate the agreement at any time they choose, this can be detrimental to your investment if it occurs during a downturn in the rental market.
While there’s always going to be a designated timeframe for the notice they’re required to give you – usually somewhere between two weeks and 60 days, depending on the laws in your relevant state or territory – it can still create stress if you have to find new tenants unexpectedly at relatively short notice.
Most often, landlords will decide to choose a fixed-term agreement to begin with, and are happy for that agreement to become periodic once the fixed-term is up.
Offering a fixed-term or periodic agreement depends entirely on your own personal situation and what will be most beneficial for you, your overall investment goals and long-term strategy.
If you’re having trouble deciding your next move, talk to your property manager for advice and input so you can make an informed decision.