In Australia, the standard rental agreement is for 12 months. Once this expires, most agencies and tenants continue on a month to month basis for so long as everyone is happy.
This arrangement, however, works in a tenant’s favour as they can move out with only four week’s notice.
As an agent managing a large rent roll, having a large proportion of tenants whose leases have expired is actually a destabilising factor due to the unpredictability of tenants.
The benefits of a long term lease
At present, there is no law about the length of a lease in Australia. It is up to the landlord / agent to set the duration in agreeance with the tenant.
Once an initial lease period has expired and you have established your tenants’ reliability, it may be worth discussing the signing of an extended lease with them. This can work in favour for both of you.
Locking a tenant into a longer lease gives them the security of a home to call their own for the long term. In some cases, they may be able to negotiate a cap on annual rent increases, which will give them peace of mind.
From the agent / landlord’s perspective, having a significant number of tenants on long leases gives you the confidence of being able to forecast the year’s income from rental properties.
Signing up tenants for an extended period means you won’t find yourself regularly having to prepare homes for new residents, pay for advertising and accommodate the gap in payments.
There will also be less incremental damage from the process of people moving in and out of the property, plus you will save on the time and costs associated with exit and entry inspections and the collection / release of rental bonds.
Long term tenants are more likely to treat your home with respect as they are going to be there for a while. They will have the chance to get to know you and you should be able to more easily manage their expectations on an ongoing basis.
When to keep short leases
If your rental properties are in a high demand area, you may decide to keep tenants on a month-to-month lease.
When someone moves out, if there is no shortage of potential replacements, you can potentially increase the rent and improve the income of your agency as well as the property owner (depending on the circumstances of their loan).
A short lease may also be a requirement if the landlord has it within their sights to sell their property in the near future. Breaking a lease can be complicated and expensive so speaking to landlords about the plans they have around selling is a good idea.
While rental vacancy rates are currently low around Australia, upcoming high rise developments mean they are set to rise in the hubs of Sydney, Melbourne and Brisbane. With this in mind, your agency may wish to consider maintaining a percentage of long term tenants so as to maintain a steady and reliable rent roll.
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