As a property investor, lease renewals seem to come around quickly, regardless if a six- or twelve-month lease was signed.
At the end of a lease, tenants and landlords can choose to sign on for another fixed-term period or continue on a periodic lease agreement (month-to-month).
In this video, Joanne Danckwardt helps to explain the difference between the two and what the benefits are of renewing a lease agreement.
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What’s the difference between fixed term and periodic lease agreements?
When a landlord and tenant are both agree with a new lease arrangement, a new lease will be signed by all parties for another fixed-term period, usually for 6 or 12 months. Should the tenant wish to vacate a fixed term agreement, penalties will be incurred.
If no new fixed-term lease is signed and the tenant is not vacating the property, the lease will automatically move to a periodic lease agreement, also known as month-to-month. The rules, rights and obligations outlined in the original lease agreement still apply. Should the tenant wish to vacate and is in a periodic agreement, 21 days’ notice in writing must be given.
What are the benefits of renewing your tenant’s lease?
Renewing a tenancy agreement comes with a range of advantages for both the landlord and tenant, and outweigh the minimal costs incurred in renewing the lease. These include:
- Keeping a good tenant
If the property has a reliable tenant and the routine inspections show the tenant is caring for the property and paying the rent on time, it’s well worth signing a new lease renewal. A tenant left on a periodic tenancy agreement may feel that their living situation is unstable and start looking for a new rental property that offers more stability.
- Minimising costs
Each time a tenant vacates a property, the property investor incurs costs associated with finding a new tenant, including advertising the property, letting fees, and potential lost rent whilst the property is vacant.
- Reduced vacancy
A lease renewal can reduce a landlord’s vacancy. One week’s vacancy is equal to a 2% loss per annum.
- Certainty
Establishing a new lease agreement with an existing tenant means the property will continue to be tenants and the rental income will not be impacted, in fact, a rental increase may be written into the new lease agreement. A new agreement generally provides for stability.
- Control
While it is possible to find tenants at any time of year, there are periods that are more challenging and could leave the property vacant for longer. A fixed-term agreement gives the landlord some control, as the end of the agreement will always fall at the same time.
- Tenant stability
A tenant will benefit from a lease renewal with increased stability, allowing them to personalise the home, and encouraging a high-quality tenant to continue to care and respect for the property.
- Reduced damage
Having less tenants move in and out of the property reduces potential damage caused to the property that can occur during the moving process.
Know your options
Before you deciding to offer the tenant a rental lease renewal, it is essential the legal requirements are understood. While a rental lease renewal has many positives, depending on the landlord circumstances, moving into a week-by-week agreement may be more beneficial. For example, if the property investor is considering selling the property, the flexibility of a month-to-month tenancy arrangement may be a better option, and is worth discussing with your real estate agent.
It is worth noting that the landlord and the tenant can always renew the lease at a later date, if both parties agree to it. This means that if, when the initial agreement expires, both parties are unable to commit to a longer-term agreement, the lease can expire, and a lease renewal agreement established when circumstances allow it.
If you are a property investor and are wondering whether to offer your tenant(s) a lease renewal, we recommend speaking to your property manager. A good property manager will be able to advise on the current leasing environment and market, and the tenant’s plans, and take into consideration your future investment goals, including short- and long-term plans. They should also be able to provide a recommendation for any adjustment to the rent.
How to renew a lease agreement
For both tenants and landlords, the first step in renewing a lease is to contact the property manager and advise of the intent to renew. Once the new lease agreement has been created, all parties should read it carefully prior to signing, to ensure all obligations and rights are understood, in case of any changes since the previous agreement. Handling a lease renewal is just one of the many services a reliable property manager offers to make life easier for a rental property owner.
If you're ready to discover how you can rent out your property with confidence, download our free Step By Step Checklist to Renting Your Property with Confidence.
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If you’re not a One Agency JD Property Agents client, but would like a second opinion on whether to renew your lease agreement – or more information on our property management service – contact us on 4285 7400 or jdpropertypm@oneagency.com.au. We are always happy to answer questions and offer advice, or offer a free rental property appraisal.
We hope these tips have been helpful. If you feel you could benefit from our experience with property management, we’d love to hear from you. Simply reach out. We hope that has helped you today. If you have any questions, we’d love to talk to you. Our number is 0426 264 771 or 0455 147 755. We look forward to talking to you soon.
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