Fixed Term & Periodic Tenancies – Rent Increases and Notice Periods
When a Tenant’s lease is due to expire, as an owner, there can be a lot of questions around the next steps and what may be best for you. A fixed term lease is a set date tenancy agreement where it starts and ends on a specific date. A periodic lease occurs when the tenants’ lease expires but a new contract is not signed so there is no end date – they continue on the same terms until further notice. There are benefits to each type of tenancy and we will go through them in this blog so when your Tenants’ lease is due to expire you can make an informed decision.
A fixed term lease, which has a specific end date, does not mean the tenant has to automatically vacate on the expiration date. The Tenant or Owner must provide a minimum of 30 days notice to the other party if they wish to end the tenancy agreement on its expiry date. During a fixed term tenancy, you cannot increase the rent unless it has been agreed upon prior to signing the agreement. For example, the tenancy agreement can state that a rent increase will take effect 6 months into a 12-month agreement, but it needs to confirm how the rent increase will be calculated. This can be based on CPI, a fixed amount, or a percentage. Your agent will need to provide 60 days notice of this increase.
If your Tenants’ lease is due to expire and the market is suggesting there is potential for a rent increase, discuss this with your Agent. In this circumstance, if the Tenant is renewing their lease, a rent increase can be written into the lease variation, however, the rent increase will only take effect 30 days into the new term. This means if your Tenant’s lease is expiring on September 30th and your Agent has proposed a rent increase to the Tenant, this will only take effect from October 30th.
If you are thinking of selling your investment property and your Tenant is on a fixed term lease, their lease will take precedent. If the property sells the new owners will need to honour the lease agreement in place. If they wish to move in, they will need to give the Tenant 30 days notice to vacate when their lease is due to expire. This type of lease agreement can be great if your property is sold to an Investor as there is already a Tenant in place! However, if the Purchaser wants to move in, they may need to wait and this could potentially be a long wait too.
With a periodic tenancy, you can still propose a rent increase to the Tenant however more notice is required. The Agent will need to provide 60 days notice to the Tenant and issue a specific form which stipulates the new rent amount and the date it will take effect. When a Tenant is on this type of lease agreement, they only need to provide 21 days notice to vacate, however if the Owner wishes to terminate the agreement for no reason, a 60-day notice period is required.
If you are thinking of selling your property and the Tenant has a periodic lease, this can give more flexibility to yourself as well as the Purchaser. If the property is under offer and has a contract for sale, the owner (or agent if rented through an agency) can issue a 30-day notice to the Tenant to vacate if vacant possession is required. If the Purchaser decides they want to keep the property as an investment, this gives them the opportunity to then sign a fixed term lease with the tenant if both parties are happy to do so.
Hopefully this has given you a bit more insight into a fixed term and periodic lease! If you have any queries about your investment property or what type of lease your Tenants are currently on, feel free to contact your Property Manager.