There are pros and cons for both a fixed term and a periodic agreement.
There are often reasons a landlord may wish to end the tenancy.
For
example, they may need to move into the property, move in a family member or
relative, prepare to sell it or upgrade it.
Periodic
tenancy agreements should be kept at a minimum in your portfolio as the
potential loss of income to you as the landlord is heightened.
When
renewing each tenancy agreement, work to secure the tenant on a new residential
tenancy agreement.
In
particular what is crucial is not the date the tenancy agreement begins, but
the date it expires.
The
cyclical and seasonal nature of tenancies can affect the rent value and its
rentability in any given season that is generally tied in with the highs and
lows of any given location of the property
What are the Benefits of a fixed term agreement
- Provides
security and peace of mind to the landlord knowing they have a fixed
income for the period of the agreement.
- Enables the
landlord to forecast and budget accordingly for any expenses or
refurbishment required.
- Rent increases
can be written into tenancy agreements even on 2-3 year fixed term
agreements.
- The term of the
agreement can end at a time where the market is at its premium, therefore
giving greater control to the landlord and agent.
- To end a fixed
term agreement, a termination notice of 30 days is required to be provided
to the tenant. A tenant cannot leave prior to the end of the fixed term
but does need to give 14 days notice if they are ending the agreement.
- Breaking a
tenancy agreement becomes the tenant’s issue not the landlords.
- Landlords
insurance policies favour fixed term agreements in rent default.
Disadvantages of a periodic agreement
- The tenant is in
control and can dictate when they wish to end the tenancy.
- The tenant can
leave at any time after receiving an agent issued termination notice and
only pay rent until the day they hand in the keys or vacate the premises,
whichever is the latter.
- The option of
increasing the rent is often missed as the tenancy continues unless the
agency is particular about following through with monitoring all periodic
agreements.
- Tenant may
terminate the tenancy at a time in the market that is low season therefore
the property will be vacant longer and possible rent value reduction can
occur.
- The
landlord/agent has to provide 90 days termination notice if vacant
possession is required. Once the tenant receives notice they can move out
at any time without further notice.
- Agent cannot
charge for achieving a periodic tenancy unlike a fixed term renewal fee
option.
- Financiers of
investment properties, do not like periodic tenancies. Its higher risk to
them and more risk means more hurdles to obtain finance in an already
tight financial market.
- Less security
for the landlord and less reliable forecast of income versus fixed term
tenancies provide.
Consider
your objectives for your investment property before deciding which term is best
for you.
While a
periodic agreement may provide you with more flexibility should you be
considering selling or developing the property, a fixed term agreement will
provide you with more piece of mind, security and control of your investment.
Communicate with your tenants via the RealRenta platform.
RealRenta dates and time-stamps each
interaction between you and your tenant and creates a comprehensive file for
each tenancy.
Use RealRenta for Free for up to 2 months now and you will NEVER
hand over your investment income to a property manager EVER again.
Marlene Liontis
Thursday, 16 May 2019
