When a tenant signs up for a lease, there are two types of tenancy agreements that the owner and tenant can enter into. These are a fixed term lease or a periodic lease. Each has its benefits and drawbacks and whether you are an owner or a prospective tenant, it is important to understand the differences between the two.
Fixed term lease
A fixed term lease, as the name suggests, is a lease for a specified period of time, where the tenancy has a definite commencement date and expiry date. This kind of agreement is usually a 6 or 12 month lease, though can be of any length as defined by one party and agreed to by the other. A fixed term lease gives both parties security of tenancy and for the owner, of income for the set period of the lease. This type of lease is the preferred option of both owner and tenants Australia wide.
The difference with a periodic lease is that although it does have a commencement date, it has no definite expiry date. This option provides flexibility for both parties, as a notice of intension to leave can be given at any time in accordance with the required legislated notice periods. A periodic lease is often agreed upon when the owner is looking to sell or develop the property or the tenant is searching for a property to purchase. In most cases a periodic lease is less preferable than a fixed term lease.
From a property investor’s point of view, a periodic lease is not ideal, as whilst the owner is required to provide to the tenant 2 months’ notice of a pending end of lease, the tenant is only required to provide 2 weeks’ notice to the owner of their intension to leave. Accordingly, if the property is required to be re-let, then 2 weeks’ notice is often insufficient to advertise and find a suitable tenant, which may result in a period of vacancy.
At Templeton Property, only approximately 1% of our portfolio of properties under management are on a ‘Periodic Lease’ at any one time. There are many aspects to consider regarding an investment property, whether you are a tenant or owner. For more investment property advice or to find out which tenancy agreement is best for your situation, talk to the experts at Templeton Property on (07) 3368 1988.