Should landlords agree to a fixed or periodic tenancy agreement?

Here’s what you need to know about these two common tenancy agreement types, and what they mean for your property portfolio. 

Read more: Avoid risky tenants and maximise your rental portfolio

Fixed tenancy

Fixed tenancies (AKA fixed-term) do what they say on the box: they last for a fixed period of time before automatically reverting to a periodic tenancy, or being renewed under a new fixed-term contract.

These can be long-term contracts that last years (one or two years are the most common), but can also be as short as a few months. They have a number of advantages for landlords as well as tenants, including:

• Stability. You always know how long a tenant is going to stay for if they are on a fixed-term contract. Tenants can’t unilaterally end the contract early—you need to agree to it as well. This means you will always know how much income you will have for that set amount of time.
• Built-in reviews. Reviews are built into the structure of fixed tenancies. If you want to increase the rent, do some renovations, sell the place, or end the tenancy, you are encouraged to do so at the end of that particular contract.
• Tenant quality. If a tenant signs up to a fixed-term contract, you can be reasonably sure they are stable in their finances and personal circumstances for a specific period of time—a clear benefit for any owner.

However, there are also a few downsides:

• Regular paperwork. The nature of fixed-term contracts mean that you (or your property manager), will have to constantly rewrite, update or simply reissue the tenancy agreement at the end of each cycle. This can be combatted by having longer fixed-term periods, but then you run the risk of being stuck with an unwanted tenant for longer than you would like.
• No rent increases. Unless you have it written specifically into the agreement, you cannot increase the rent that the tenant is paying until the period concludes.
• Inflexible. If you suddenly had to sell the property, you would not be able to until the current fixed agreement concludes. A lot can happen in property over the course of six months, and you may miss out on sale opportunities because of a fixed tenant.

Learn how to find better tenants with the 3 secrets you need to know about finding, interviewing and sealing the deal with prospective renters.

Periodic tenancy

Periodic tenancies, on the other hand, are the opposite: they last until one party gives written notice to end it. There is no single date that the contract concludes, which has both upsides and downsides.

In terms of positives, a periodic tenancy is:

• Simple. Rather than having to worry about renewing the agreement every single time, a periodic tenancy can just keep rolling until one (or both), parties have decided that it is time for it to conclude.
• Flexible. If you decide that you want to sell the property, or even move into it yourself, you can do so far more easily with a periodic tenancy in comparison to a fixed-term tenant. On a similar note, a problematic tenant can also be removed more easily if they are on a periodic tenancy.
• Rent increases. On a periodic tenancy, you can increase rent so long as you do it after the first 180 days, and not within 180 days of the last increase.

However, there are some downsides as well:

• Instability. You can give 90 days’ notice at any time—but your tenant can give their 21 days’ notice at any time as well. They could stay for a very long time, or they could be gone within the next three weeks. That could put you on the back foot for your income, and might send your property manager scrambling to find another renter for the home.
• High turnover. On a similar note, if periodic tenancies are your standard form of tenancy, you may find that you have a high turnover of renters. Having multiple households regularly move in and out of a home can increase wear and tear, not to mention extend the number of vacant days.

The landlord’s notice period can be knocked down to 42 days’ notice in some circumstances, such as:

• The property has been sold and the new owner wants vacant possession.
• The owner (or a member of their family), is moving into the home.
• The home is usually employee accommodation and is needed for that reason again.

Many landlords choose to have a fixed term contract to begin with, then allow the contract to lapse into periodic in order to avoid high turnover rates. However, others prefer to always have a fixed-term contract.

The choice is yours—both tenancy types have their pros and cons, and each have their place in a portfolio. One type of tenant (or strategy or property), may suit a fixed-term, while another may be better with a periodic tenancy. If you aren’t sure, ask your property manager for advice—they will be able to assist you with this decision.