We have written previously about the benefits for a landlord of having a tenant on a fixed term lease rather than a rolling or periodic arrangement. Several of the main advantages include:
As a landlord who has engaged a real estate agent to manage your rental property, you would expect that the property manager would monitor the lease terms for each property and begin certain processes when ever a lease was approaching expiry. Unfortunately this is not always the case.
What Happens When A Fixed Term Lease Expires?
Many landlords do not realise that once a fixed term lease expires, unless there is a formal communication from either the landlord or the tenant that they wish to end the tenancy, the tenancy automatically continues under a rolling or periodic (month to month) arrangement under the same lease terms as previously agreed.
For this reason, if a property manager does not have systems and processes in place to monitor upcoming lease expiries, a tenant's fixed term lease may transition to a rolling periodic arrangement without being noticed by the property manager, the tenant or the landlord!
What Happens If A Fixed Term Lease Becomes A Rolling Arrangement?
The automatic transition of a fixed term lease to a periodic / rolling arrangement presents several challenges.
Firstly, the notice periods to end a tenancy change significantly once a tenant is outside of a fixed term lease. 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 unexpectedly find a new tenant during a low point in the market such as in the lead up to Christmas.
In addition, if it is the landlord who wishes to end the periodic arrangement, the landlord / agent must provide 90 days notice to terminate the tenancy, 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).
Most importantly, under a periodic arrangement, once the tenant receives this 90 day notice, they can move out at any time and only pay rent until the day they provide vacant possession of the property (which could be as early as the next day if they could physically manage it!).
An Opportunity To Increase Rent May Be Missed
Commonly, in instances where a property manager has not taken action prior to the end of a fixed term lease to have the tenant re-sign for another fixed term, there is a missed opportunity to increase the rent.
Rent reviews and rent increases usually take place at the time a fixed term lease is renewed. Without the property manager's awareness that the lease is approaching expiry, the opportunity to review and raise rent may be missed.
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. Typically, within 2-3 months out from the end of a fixed term lease, we will have commenced conversations with the current tenant to determine their plans including their interest in renewing the lease for another term, ability to manage a rent increase should this be appropriate, and of course to have similar conversations with the investor also, before preparing a new lease or preparing the property for a return to the market.
If you are seeking focused, experienced, transparent and professional property management in Newcastle, contact us now. We'd love to meet you and discuss your investment.
Carnelian Property Management Newcastle NSW
We are a family-owned and run Newcastle real estate agent offering expert property management across Newcastle and Lake Macquarie.