The end of a tenant’s lease is an excellent time to review their tenancy as well as your long-term plans for the property. The experts at One Agency Orange have summarised the pros and cons of tenancy lease renewal and outlined some key options for you to consider when making that decision.
When the current fixed-term lease is expiring, you have the choice to renew the lease for a further fixed term, end the tenancy, or continue with a periodic term that has no fixed term in place.
If you have great tenants who want to stay, the benefits to you of a fixed-term agreement include financial stability, uninterrupted income, and the peace of mind that a good tenant brings. It also means your property won’t be sitting vacant while you find another suitable tenant.
Keeping a great tenant for as long as you can is one of the key factors in successful property investment. Not only does it reduce times of vacancy, the longer a good tenant stays the more likely they are to treat the property like their own home, take care of it for you, and establish a good relationship with you.
It also means less wear and tear on the property from the changeover of tenancies where furniture is being moved in and out of the home, and fewer changeover costs for finding a new tenant such as a lease renewal fee and advertising costs.
“This is a great option if you’re certain you want to keep the property for the coming year and want to maintain an uninterrupted rental income,” advises Simone Fogarty, Senior Property Manager at One Agency Orange.
“The end of a lease is also an excellent time to review your mid- and long-term plans, so have a think and be sure you’re not going to change your mind halfway through the next fixed lease as there are better options if you need the lease to be flexible.”
In a slow market where it’s hard to get good tenants and your current great tenants are unsure if they want to stay on, you can consider giving them an incentive such as free lawnmowing or a free rent period at the start of the new lease. Those costs can be offset by not having to pay the costs of renewing the lease with another tenant.
Another option to consider is a periodic lease that has no fixed term but instead is an agreement in place from month to month. It’s a more flexible type of lease that allows both the tenant and the owner to end the tenancy with minimal notice and gives you more options for a rent increase.
“This option is a useful one if you want to sell or renovate but not just yet or if you want to move the start and end dates of your fixed-term lease to a more suitable time in the year, such as when rent demand is higher,” says Simone.
If you don’t renew a fixed lease when it expires, in NSW that lease will automatically become a periodic lease.
“This is also a great option if you want your tenants to stay on a bit longer but without locking yourself into a new lease for a full year,” advises Simone.
End the tenancy
If you’re not happy with your current tenant, then the end of the lease is a great time to remove them and find a better one without any of the procedures you’d have to follow and costs you incur while the lease is still in place.
“Make certain you know your legal requirements regarding notice periods and expectations for the vacate, though,” says Simone.
“So often, property owners act on information from friends or an internet search and end up in trouble because they don’t know the law. If you use a professional property manager, they will be up to date on the current legislation and will be a huge help to you.”
Ending a tenancy is also a good time to get started on any plans you may have to renovate or sell the property where you need it to be vacant for a length of time.
“Your property manager can also be a great help in finding trades if you’re going to renovate or sell and helping you set up a realistic timeline for those, so have a chat with them before you get started,” says Simone.
Should I raise the rent?
Your property manager can provide a current market estimate and work with you to determine if the rent should go up, down or stay the same to meet the market. If you’re managing the property yourself, do your research well; the right price can affect your profit and, in some markets, can also mean the difference between a good and a bad tenant.
If a rent increase is due and you want to keep great tenants, it’s a good idea to be a bit more conservative to reward them for taking care of your property, especially if they have been doing a good job of that and have been keeping up with their rent payments.
Need more information?
It’s important to know that each Australian state has different requirements for the terms of a lease. In NSW, you can find this information for yourself here, or talk to your property manager.
“An experienced property manager will already have a sound knowledge of the local laws and will be able to give you up-to-date information on your options and responsibilities,” says Simone.
Each property owner has different requirements for a tenancy and there’s a lot to know so it’s wise to talk to the experts about the best option for you when reviewing your tenancy lease renewal. If you’d like to know more, contact Simone about a custom plan for your investment or come and meet the team in person at our office in Summer Street.
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