Landlord Benefits of a Fixed Term Lease over a Month-To-Month (Periodic) Arrangement

The benefits of having a fixed term lease for a rental property, rather than a month-to-month (also known as periodic) arrangement, vary with your perspective. Those aspects which are positive for the landlord are generally less desirable for the tenant. 

In this article we'll take a look from the landlord's perspective at the top reasons why a fixed term lease is usually preferred.  ​

Benefits of having a tenant on a fixed term lease

1. Security and stability - as you will have a clearly documented, regular fixed income for the period of the agreement
2. Cash flow management is improved - given the stability of income, it is easier to plan for maintenance, improvements, or other planned expenses related to the property
3. Greater control - a fixed term agreement can be made with an end date suitable to the market and to the landlord e.g. preventing vacancy around Christmas / New Year period when the rental market may be softer, or ending the agreement to align with moving back into the property yourself or even selling the property
4. Insurance benefit - a fixed term lease is beneficial from an insurance perspective. As an example, if a tenant defaults on rental payments and there is a court-order for the tenant to provide vacant possession, the insurance company may cover up to 15 weeks of lost rent. If on a periodic arrangement, many insurance companies will not cover more than 2 weeks of lost rent. Please note this is a guide only - always check the details of your own landlord insurance coverage with your provider.

Downsides of having a tenant on a month-to-month (periodic) arrangement

1. Uncertainty of duration - the tenant decides independently when they will end their tenancy. Under a periodic arrangement, the tenant is only required to give 21 days notice of their chosen end date. This could lead to a need to find a new tenant during a low point in the market such as in the lead up to Christmas. 
2. Missed opportunity to increase rent - often rent reviews and rent increases take place at the time a fixed term lease is renewed. Without this trigger, the opportunity to review and raise rent may be missed. This is especially the case if self-managing your investment property or if you have a less-than-proactive property management company. Carnelian Property Management undertakes regular rent reviews even in instances where a property is under a periodic arrangement, to ensure the return on the investment remains strong for the landlord. 
3. Less favourable notice periods - the period of notice required to give the tenant to vacate a property changes with circumstances as well as whether there is a fixed term agreement or a periodic arrangement. The most relevant example of the impact is that the landlord / agent must provide 90 days notice to terminate a month-to-month arrangement, while only 30 days notice is required if the landlord wishes to end the tenancy at the end of the fixed term (presuming this is not due to any breach of the tenancy agreement by the tenant).
4. Tenant can leave earlier than expected - importantly, under a periodic arrangement, once the tenant receives notice they can move out at any time and only pay rent until the day they hand in the keys or vacate the premises. As a landlord, this means that if you have a tenant under a periodic arrangement and issue them 90 days notice to end the tenancy, the tenant may vacate significantly earlier than the 90 days (as early as the next day if they could physically manage it!) and owe no further rent once possession has been returned. 

Discuss your plans with your property manager

In summary, the ideal arrangement will depend on your circumstances, and should be discussed with your property manager. A periodic arrangement may be more suitable if you require flexibility to end the tenancy should you be considering selling or moving back into the property, for example. 

However if you have no such plans and would like greater peace of mind and control over your investment, a fixed term lease offers greater stability and security. 

Let's discuss what's best for you