FIXED TERM VS. PERIODIC TENANCY
- Posted By Prince Lakshman
If you’ve been wanting to lease your property, you might have wondered about the kind of rental agreement you need to set up before doing so.
Whether you choose a fixed term or periodic tenancy, the reason will mostly depend on the plans you want for the investment property. If you want more flexibility and you’re looking to make some changes every now and then to the property, you might want to give periodic tenancy a go. On the other hand, if you’re motivated by financial security, a fixed term tenancy would surely meet that criterion.
FIXED TERM TENANCY
A fixed term tenancy is a tenancy where the parties agree on a specific definite commencement date and end date . The specific length of time usually goes for six months or one year, although it can be for any period as long as it is fixed. This type of tenancy gives both the tenant and the landlord security of tenancy and income for a set period of time respectively.
Once the initial fixed term expires, you and your tenant can agree to a further fixed term lease. If you have not agreed to an additional fixed term, the rental will automatically default to a periodic agreement, which continues until either the landlord or the tenant gives notice.
You can also indicate the amount and timing of any rent increases on a fixed term arrangement. You can increase the rent every six months in most states, although it can be as little as 60 days or as long as a year. Hence, it might be good to discuss this with the property manager or landlord before making any commitments.
The preferred type of tenancy is the fixed term agreement and this is mainly because of the financial security it offers. Aside from having a sure income within a specific length of time, you also have the ability to forecast and budget for any expenses or renovation jobs.
One drawback is you could only terminate the lease if the tenant agrees. So if your circumstances change and you need to sell or refurbish the property, you could be forced to wait until the end of the agreed term.
However, you can still evict a difficult renter, who for instance, doesn’t pay the rent or maliciously damages the property.
PERIODIC TENANCY
A periodic tenancy is for a recurring period (month-to-month) without a fixed term or expiry date. It continues until either party decides to bring the lease to an end.
The rules around the amount of notice required vary from state to state, but landlords generally need to give more notice than the tenant.
Periodic tenancies can give both parties flexibility in giving notice, as there is no expiry date and notice to vacate the property can be given at any time in accordance with a periodic tenancy notice period. As long as you adhere to the notice requirements for your state, you can ask the tenant to leave at any time.
If you’re planning to do some major work, sell the property, or move into the home yourself, this is the perfect lease term for you.
The disadvantage of this though, is that your tenant has also the same flexibility of ending the agreement. And in most states, the minimum time they give notice is less than what is required from the landlord. Therefore, you may find yourself with an unexpected vacant property and no more incoming rental for an undetermined period of time. This can spell a disaster on your personal finances, most especially if your rental income helps in covering the mortgage payments.
Choosing between a fixed term or periodic tenancy will come down to what works best for you and your tenant, where your property is and even the time of the year.