Tenancies – Fixed Term or Periodic/Rolling?

Mike 15/04/2017

What’s the Difference?

A fixed term tenancy offers the tenant security of tenure and means that their rent won’t change during the tenancy. More importantly, for you as the property owner it means that you know exactly how long the tenancy is going to run for, and so you’re more in control, right?

Maybe. I view the fixed term tenancy option as LAZY LANDLORDING. It’s the easy way out. Why? For several reasons, all of which come from my years of experience as a property manager and landlord.

It’s not always going to be “fixed”

First, a fixed term tenancy means you can’t give notice to your tenant if you want them to move out. This can arise when the property owner (as often happens) returns from overseas and wants to move back into their home. However, you have them locked into a two year fixed contract….

Secondly, tenant’s circumstances change. They may be a couple heading for divorce, or they might get a new job in a different city and have to leave. In any case, they want out of the tenancy, and most tenants don’t really understand that they can’t actually give notice in a fixed term tenancy. This means that you have to find another tenant even though you have the fixed agreement in place. It also means you have a fair bit of work on your hands, none of which you should really get paid for.

Alternatively, you could ask that the outgoing tenant finds you someone to replace them by taking over the lease. That might also seem like a good idea, until you realise that the tenant will take the first likely looking Johnny that comes along rather than taking some care in choosing a great tenant as I’m sure you (or your property manager) aims to do. You can end up with some pretty second rate tenants from such an arrangement.

Unless…

Thirdly, you might not be able to change the rent rate with a fixed tenancy in place. When rents generally start to move in the upward direction, if you’ve fix a tenancy for two years, you may not be able to put the rent up. Unless of course you include a rent review clause in your Tenancy Agreement.

Be prepared to do a little work to optimize your investment in property. Or might I suggest you get a property manager who knows what they’re doing? Then you can spend your new-found free time searching out more investment properties?