Should my tenant be on a fixed term lease

It is quite common for a tenant to sign an initial lease for a set period of time when they first move into a property e.g. 12 months.  At the end of this period of time, there are provisions in our legislation for a tenant to remain in the property without signing a new agreement, if they have not been provided with notice to vacate.  When this happens, the tenancy becomes what is known as a periodic or a “month to month” agreement, depending upon where you live.  Basically, it continues under the same terms and conditions as the original agreement, but without an end date.

In theory, this doesn’t sound like a bad thing and often owners will see no reason to upset the apple cart, particularly if a tenant is not keen to commit to a new fixed term agreement.  You can still increase the rent by providing the appropriate amount of notice and if you wish to sell the property, or move back into it yourself, you can provide the appropriate amount of notice for the tenant to vacate.  So what’s the big deal?

Well, there are definitely benefits for an owner if their property is rented on a fixed term tenancy and not just because you are able to budget the income you will receive for the term of the agreement.  If you are seeking to borrow money, finance companies prefer a secured lease and of course, insurance companies can be a little tricky with paying out on lost rent, etc – they will often only take into account the notice period applicable which might only be a few weeks, rather than to the end of a lease.

The biggest thing to consider though, is the amount of notice to vacate required by either party when there is a periodic agreement in place.  The tenant has to provide a significantly smaller amount of time if they wish to vacate than the owner.  Weeks versus months.  And of course, we cannot predict when they will provide their notice of intention to leave – Murphy’s Law means it is generally at the most inconvenient time possible.  You would be surprised how many tenants like to vacate during the week before Christmas, yet we find hardly anyone ever wants to move in before the second week of the new year meaning weeks without rent for the owner.

In our experience, regardless of how great a tenant is, if they are unwilling to commit to a further lease then they are keeping their options open and will most likely be looking at vacating the property shortly.  This may suit your situation, however if you are looking to maximise your return, having a measure of control around when your property is going to be vacant is important.

We will reach out to you ahead of your rental agreement expiring so we can create a plan together to help limit your risk.  If your tenant is on a periodic agreement at the moment and you would like them to sign a fixed term agreement, please let us know.

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