Fixed-term leases or periodic leases?
When renting out your property, you have a few tenancy options to choose from, depending on your preferences. If short-term or holiday rentals aren’t an option for you, it’s time to think about your long-term options. When looking for long-term tenants, most property investors rent their property on a fixed-term basis. We explain the differences between fixed-term and periodic leases and when each may be appropriate for you.
This is a lease agreement signed for a specific time period, usually 6 or 12 months for residential tenancies. A fixed-term lease is an excellent choice if financial security is one of your primary motivators. When a fixed lease term expires, you and your tenant can either agree to another fixed lease term, or if neither party gives notice, the lease automatically becomes a periodic lease (month-to-month). The same terms and conditions as in the original lease apply, and the periodic lease will continue until either you or your tenant gives appropriate notice to terminate the agreement.
Rent increases are most commonly seen at the start of a new fixed-term agreement. When negotiating a fixed-term lease, it’s important to seek advice from your property manager to ensure that the rental price is appropriate for the duration of the agreement. You must also follow Queensland’s legislation, which states that you must issue a notice of rent increase at least 60 days before it takes effect and that you can only increase the rent once every 6 months.
The most significant advantage of fixed-term leases is the financial security they provide. The major disadvantages, on the other hand, include having to wait until the end of the fixed term to sell with vacant possession (you can sell tenanted, but that’s another story) or completing major renovations to your property.
A periodic lease is a month-to-month agreement that offers greater flexibility than a fixed-term lease. It will last until either party gives written notice to terminate the lease. Tenants are generally required to provide 14 days’ notice, while landlords are required to provide a little more notice, usually 60 days, and the only notices available are if the tenant breaches their obligations, you’re moving in, or you need to sell / renovate.
If you plan to do major renovations or sell your property, a periodic lease can be ideal for keeping your property rented while you make your plans. However, tenants have the same flexibility in a month-to-month lease, so if your tenant decides to leave, you could end up with a vacant property and no rental income. In Queensland, it’s also uncommon to begin a tenancy as a periodic rather than a fixed term agreement, which can make a property more difficult to lease if you’re offering something suspicious to astute quality tenants.
It’s entirely up to you
The choice between a fixed-term lease and a periodic lease will be determined by what works best for your wealth-building objectives. If you value stability and financial security, a fixed-term lease is a good option. If flexibility is important to you, a periodic lease may be a better option. When listing your property, consult with your property manager to ensure you select the best option for you.
Please keep in mind that this article is not intended to provide financial or legal advice. Before making any decisions for yourself, please consult with your professional financial and legal advisors.