When renting your property to tenants, one of the key factors to consider is what type of tenancy agreement is better for your investment.
Periodic lease or fixed term lease? There are some differences you need to know.
You can sign two different types of lease (or residential tenancy agreement) with your tenant: a fixed term lease or a periodic lease. It’s vital you understand the differences to be able to decide which one is better for you and your investment.
Fixed term lease
The general features of a fixed term lease are:
- It is for a fixed period of time, e.g. 6 or 12 months (or other agreed period).
- It specifies an end date.
- It is used at either the start of a tenancy or when the parties are renewing the agreement once the original fixed term period has ended.
Periodic or continuing lease
The general features of a periodic lease are:
- It is a tenancy for an indefinite period of time.
- It is typically used when a fixed term lease has expired. You automatically move to a periodic agreement if the tenant continues renting the property once the fixed term agreement ends, and no new agreement is signed.
- It is really unusual to choose a periodic agreement from the beginning of the tenancy.
- The landlord and the tenant must follow the rules set out in the original fixed term agreement.
The rights and obligations under a fixed term agreement and a periodic agreement are generally the same. There are differences however, in how you can end the tenancy and how rent increases can be applied.
If you want the tenants to terminate renting your property and move out, then you must give them a termination notice. The minimum notice period you can give the tenant differs for a fixed term lease and a periodic term lease. You must give:
- 30 days notice for a fixed term agreement.
- 90 days notice for a periodic agreement.
If the tenant decides to leave
If your tenants want to end a fixed term tenancy agreement, they will need to give you at least 14 days notice. This notice can be given up to and including the last day of the fixed term.
If your tenants want to end the tenancy and you have a periodic lease, they will need to give you at least 21 days notice. This notice can be given at any time and they have to pay the rent up to and including the day the notice ends and they move out.
If you are considering increasing the rent there are certain procedures you must follow. Again, they are different depending on the type of agreement you have with your tenant.
It is important to note that regardless of the type of agreement, you must always give the tenant at least 60 days notice in writing before the date the rent increase becomes payable.
Rent increase in a fixed term lease
Rent can be increased during the fixed term of the agreement only in certain circumstances:
- During a fixed term lease of 2 years or more: the rent can be increased at anytime but not more than once in 12 months.
- During a fixed term lease of less than 2 years: the rent can not be increased, unless a term has been added to the agreement specifically saying it can.
Rent increase in a periodic lease
If your tenant is on a continuing (periodic) tenancy you may increase the rent when you choose to, remembering you must always give the tenant at least 60 days notice in writing.