Fixed-term or periodic tenancies? What's better?

Fixed-term tenancies

If financial security is one of your key motivators, a fixed-term tenancy is a great option. As the name indicates, a fixed-term tenancy covers a set amount of time — the most common being six or 12 months. When a fixed term ends, you and your tenant can agree to a further fixed term. However, the tenancy automatically becomes a periodic agreement if a further fixed-term tenancy isn't agreed to, and the tenant does not vacate. The periodic tenancy continues until either you or your tenant gives notice to end the agreement. 

Rent increases typically occur at the start of a new fixed-term agreement. It's important you get some advice from your Property Manager when you're negotiating a fixed-term tenancy to make sure the rental price is suitable for the life of the agreement. You also need to make sure you're abiding by the legislation, in New Zealand that is no more than one rent increase every 12 months. 

The biggest benefit of fixed-term tenancies is the financial security it provides. This can be especially critical with inner city apartments and anywhere that has a strong base of students or young professionals who like to vacate over the summer months.  In contrast, the major drawbacks include needing to wait until the end of the fixed term to sell or complete major renovations to your property. 

Periodic tenancies

A periodic tenancy is a month-to-month agreement that provides more flexibility than a fixed-term agreement. It continues until either party gives written notice to end the tenancy. In New Zealand tenants are required to provide 28 days' notice while landlords need to provide a specific reason such as; the property is sold or to be sold, a family member etc is to move back into the home or the owner plans to complete major renovations at the property and it is not practical for the tenants to remain there. The time periods differ depending upon the circumstances between 63 and 90 days. You should always speak to your Property Manager to confirm which if any apply to your circumstances.   

If you're looking to do major renovations or to sell your property, a periodic tenancy can be perfect for getting your property rented while you make plans. However, it's important to note that tenants have the same flexibility in a month-to-month tenancy, so you could end up with a vacant property and no rental income if your tenant decides to leave before you are ready. 

It's up to you

Choosing between a fixed-term or periodic tenancy will depend on what will work best for your wealth-building goals. A fixed-term tenancy is a good option if you value stability and financial security. However, if flexibility is your priority, a periodic tenancy may be more suitable. Talk to your Property Manager when you're listing your property to make sure you choose the option that works for you.

Remember, this article does not constitute financial or legal advice. Please consult your professional financial and legal advisors before making any decisions for yourself.