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. Whether you are a landlord 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 commonly for 6- or 12-month lease term, 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 landlord, of income for the set period of the lease. This type of lease is the most common option of lease agreement for both landlord and tenants.
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.