Ending a Tenancy
The changes to how we can end a tenancy are probably the most critical of all the new regulations.
But, and this is a big but, these grounds only apply if there is no fixed term lease in place.
What this means is that if the tenant is on what we call a “periodic tenancy” (no end date), then one of the prescribed grounds must be provided if a tenant is issued with a Notice to Vacate. Timeframes still remain the same, it’s just the reason why someone is being asked to leave a property is now restricted.
The good news is that the prescribed grounds reflect pretty much the same reasons that most investors would provide if they wished a tenancy to end e.g. sale of property, owner moving back in, renovations, etc.
However, what this change has done, is remove the flexibility that both owners and tenants have enjoyed with a periodic tenancy in the past. As an example, a tenant may be building a home and there have been a few delays with handover – a periodic tenancy is a great solution for this kind of situation.
What is interesting though is that under the new regulations, a fixed-term tenancy doesn’t have the same prescribed grounds for being ended. The appropriate notice period must still be provided before the end of the agreement, but there is no requirement for a specific reason if notice is provided to the tenant.
Our Agency’s Approach
There are a number of reasons why we have always strongly recommended that a tenant remains on a fixed-term lease, with the big one being security for all parties involved.
In the past, where some clients may have wanted to keep their options open, perhaps to see “how things pan out” with a situation, allowing a fixed-term lease to lapse into a periodic tenancy has made sense. But not anymore. As soon as an agreement no longer has a fixed end date, the options for an owner become very limited after the 1st of October.
This is why we will probably be a little more insistent than we have in the past about what your plans are as the end of a fixed-term agreement approaches. If a tenant is offered to renew their lease but is delaying signing a new agreement (perhaps hedging their bets), a Notice to Leave will be issued.
Of course, we will discuss the situation with you at the time if this action is required. And although this approach sounds very harsh, it is simply the best way to protect your interests as our client, moving forward. The advice from our industry body has also been to take this approach.
How We Feel Things Will Look Moving Forward
With the current market conditions the way they are, tenants are more than likely to not flinch at securing a fixed-term lease. In fact, given the shortage of properties in many areas, they will most likely be asking “where do I sign?”.
What we do expect to see as time goes on, are more “Lease Break” situations where a tenant will have committed to a fixed-term lease and then their circumstances change during the term of their agreement. The legislation for this type of scenario is quite clear (well to Property Managers at least) and in most instances, the owner of the property is not financially impacted.
However, if market conditions soften and it is more difficult to find a new tenant for the property (even at reduced rent), tenants may become less cooperative, emotions will be heightened and we anticipate there will be more visits to the Tribunal initiated by the vacating tenant. Of course, we are happy to be proven wrong but it is very much a case of “watch this space”.
Regardless of what may or may not happen down the track, we are firm in our belief that a fixed-term lease for all tenanted properties is in the best interests of our investor clients.
What’s Important to Remember
The intention of the changes to legislation is to provide more security to tenants, particularly with more people selecting to rent for longer periods than in the past. This is something we definitely support.
For investors, it is also nice to have that surety. The changes simply mean that you need to perhaps be thinking a little further ahead with what your plans are for your property, then you may have previously.
Tomorrow, we are going to share a few of the changes that are not necessarily grabbing the media’s attention, but we feel you should be across.