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The good and the bad of month-to-month leases

Seaside Asset Management Group Oct 23, 2017 0 Comments

When you don’t sign a new lease at the end of your tenancy (i.e. renew a lease of which generally expires after 6 or 12 months for many residential properties) you’ll be leasing your property on a periodic agreement (or as many of you know a month-by-month) agreement.

This mean that you have consented to a tenancy outside of a fixed-term. This is good and bad – depending on how you look at it. The lease conditions (i.e. the original agreement) are still in place-but your tenant could leave the property by simply providing a 28 day notice to vacate. Depending on the area, 28 day’s notice is generally sufficient notice to be able to list the property on the market for lease, conduct inspections and aim to have the property leased prior to the current tenant vacating….. all in a perfect world of course.

In Australia, periodic agreements do offer owners some flexibility. But what other advantages and disadvantages are worth considering before you offer that next lease?

Pro: Greater flexibility

Having a tenant on a month to month tenancy means that you have more control (than a fixed tenancy) at this stage (without any changes in the residential tenancies act) you can also dictate to when a tenancy is to end. Perhaps your circumstances may change and you need to move your family back into your investment property, it’s as simple as issuing a 60 day notice to vacate (plus approx. 9 days for postage)

Pro: You can (usually) switch to a long-term lease

If you are fortunate enough to have a generally good tenant, you may be open to offering a periodic lease into a fixed 12-month or 6-month lease down the track. But there are some circumstances where this won’t be the case. For example, if the tenant is then happy with their flexibility on being on a month to month lease, or they have purchased/building and plan to vacate in the near future anyway.

Pro: Your rent isn’t fixed

Arguably, the biggest benefit of signing a fixed-term lease is that you’re able to lock in your rental rate, which can make it easier for tenants to manage their budget. If you’re tenants are on a periodic agreement, as the landlord you are able to issue the tenants with a 60 notice of rent increase (again, you will need to allow approx. 9 days for postage) however, if you have a fantastic tenant and they are to vacate the property on the basis of a $5 per week rent increase- you will need to think if it is really worth losing a great tenant for a small amount- think of your releasing expenses…which are generally equivalent to one weeks rent + GST.

Con: Moving isn’t cheap (for a tenant)

If a tenant goes from one short-term lease to the next, they will start burning money that you could be putting towards other important things in their life. Even without a professional mover, their lease may require fees to cover your application, utility transfers and the bond clean. Moreover, there’s often a lag time in terms of a landlord or agent releasing their rental bond. If you are admemant about keeping your tenants on a month to month lease, keep in mind that some people aren’t always happy with this. You will find they are sometimes happier to bite the bullet and move to have the peace of mind that they are secure in their property.

At the end of the day… 
If you really happy with the tenant that you have living in your rental property, they pay their rent on time and maintain the property to an exceptional standard, if you’re not concerned if they are on a month to month or a fixed term agreement then there is no real reason to concern the occupants with demanding a fixed term contract. On a periodic agreement, the tenants are bound by the same conditions: being regular routine inspections, rent increases etc. The key difference is that on a periodic tenancy you as the owner or the tenant can decide to end the tenancy at relatively short notice.  

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