What is a periodic tenancy? pros and cons

Changes to the Residential Tenancy Act has changed the way landlords can ask a tenant to vacate a property – which has shifted the balance in favour of the tenant.

That said, which is the better tenancy option – periodic or fixed?

In this article, you’ll learn what the change to the Residential Tenancy Act is, and what the benefits are between fixed and periodic tenancies to make an informed decision for your property.

Do you have a question or comment about periodic vs fixed term tenancy? Feel free to leave your thoughts in the comment section at the end of the page.

Periodic vs fixed term tenancy – what’s the difference?

Before we begin, let’s explain the difference between a fixed term and a periodic tenancy.

A fixed-term tenancy agreement means a tenant and a landlord are locked in for a certain amount of time (12 months is the norm). This means the tenant can’t give notice and move out before the set end date without incurring break fees.

A periodic tenancy is a rolling tenancy that has no end date – unless the landlord or the tenant gives notice to end the tenancy.

A tenant can give notice for any reason, a landlord cannot. More on this in the next section.

Fixed automatically rolls over into a periodic tenancy once the fixed term comes to an end.

So, Bob and Simon sign a 12-month fixed-term tenancy agreement in July 2022. This means before July 2023 they can’t just hand in there 3-week notice and leave without breaking the contract. If they do, the landlord can charge them for the remaining tenancy.

At the end of that you can agree to sign on for another 12 months or the tenancy automatically rolls on to a periodic one.

…One caveat with fixed terms

If you are using fixed term tenancy, they can be assigned.

So, let’s say our couple Bob and Simon have signed up to their 12-month lease. But, 4 months later Bob’s got a job down south and both of them need to move.

There’s nothing stopping Bob and Simon from getting their mate Sally to move in to the property to see out the remainder of the fixed-term tenancy.

Sally might be a nice, good tenant, or she could belong to a motorcycle gang and have 14 cats.

Property investors are not allowed to object to an assigned tenant unless they have reasonable grounds to do so. So, what are “reasonable grounds” I hear you ask? Well, it’s not explicitly stated.

It could be safe to assume that Sally with her 14 cats and her passion for revving at 11pm would come under this category, but it’s a risk.

What are the recent changes to the periodic tenancy?

The Residential Tenancies Amendment Act (RTA) 2020 removes the ability of landlords to end a periodic tenancy by giving 90 days’ notice without giving a reason to the tenant. This part of the legislation came into effect on February 11, 2021.

Now, changes to the Residential Tenancy Act mean you cannot ask your tenant to leave a periodic tenancy unless you are:

• Conducting renovations

• Or a family member is moving in

• Or you yourself are moving in.

So, if your tenant is in a periodic tenancy they are pretty much setting up camp for good. They can live there indefinitely.

Said another way, it is rather difficult to give your unruly tenant the boot.

You can’t just say “your 12 months are up, that’s it, you’re out.”

Who is a fixed-term tenancy good for?

Fixed term is probably preferred by tenants because they know they have a fixed amount of rent that they are paying for a fixed amount of time.

While there can be rent increases during a fixed-term tenancy, this tends to be less common (more on this below). So, tenants like that sort of certainty.

There are also benefits for landlords.

In a hot rental market it’s usually no problem to get a tenant to sign up for a 12-month tenancy, paying your rent, which means you’ve eliminated your risk of vacancy.

But with a periodic tenancy they could move in for a few months and then hand in their notice.

Sure, if they chose to leave early you can charge them break fees, or reasonable costs. But the hassle and the uncertainty is still a risk if you can’t get new tenants.

How do I get my tenant to sign up for another 12 months?

A lot of investors ask us how they get their tenant to sign on for another 12 months.

Really, it could be as simple as asking them: “Hey, would you like to sign up for another 12 months fixed term?”

This doesn’t mean you are being sneaky about it, or withholding their rights as a tenant from them. If you ask them a question, and they say “yes” – great.

Most tenants will be happy to sign up for the certainty of that tenancy (and rent) for another 12 months.

Or, if they are a bit unsure, maybe sweeten the deal with a discount?

Let’s say you’ve had a steady tenant for 12 months paying $500 a week in rent. Now, the market rent is $550.

If your tenant rolls into periodic, they will be headed for a $50 per week increase.

But if they are willing to stay for another 12 months, why not offer them $525 as a cheaper rent.

If you’ve got a steady tenant in there, so no vacancy period, you might be able to absorb some of that rental increase.

Before you wonder, Yes, It’s legal. As long as it’s agreed on.

How long do periodic tenancies last for?

Indefinitely. Unlike a fixed-term contract, there is no end date.

This means a landlord or tenant must give written notice to end a periodic tenancy.

How Does A Periodic Tenancy End?

How a period tenancy ends is different depending on who or what the situation is.

The Tenant

A tenant must give the landlord 28 days’ notice to end the periodic tenancy. This notice period can be shorter if the landlord agrees to it.

But, even in a situation where the landlord has given notice, the tenant must still give 28 days’ notice if they want to move out sooner.

So, let’s say Bob and Simon’s landlord is doing renovations and has given them 90 days’ notice. If Bob and Simon find a place quicker than that 90-day time period, they still have to give their landlord 28 days minimum.

The Landlord

A landlord must give 90 days’ written notice to end a periodic tenancy, but usually only for one of the following reasons:

• The property is being sold

• The property is being renovated (extensively)

• The property is being demolished

63 days’ notice must be given if the owner of the property plans to, or have a family member, move into the property.

Other Reasons

There are a few additional reasons for a periodic tenancy ending.

• Overdue rent

• Anti-social or unacceptable behaviour

• Family violence

• Physical assault by tenant

Who is a periodic tenancy good for?

Periodic tenancies can be better for the long term, although some investors may agree to this point reluctantly.

Why? Well, as a long-term investor you might want the flexibility that a fixed-term contract can bring.

However, the new Residential Tenancy Act rules may have blunted a lot of that flexibility anyway.

It could be said that long-term tenants, who are living in a standalone house with their kids in school, don’t feel like they have the same security if they have a fixed tenancy.

For instance, social science suggests people tend to quit their jobs around birthdays, new year and anniversaries.

This is because it acts as a trigger to re-evaluate your life.

So, if you have a long-term tenant in there – who’s probably busy working away, his kids are in local school – you don’t want to have this 12-month reminder, or trigger, to ask them: “Oh, should I move?”

Remember, a periodic tenancy doesn’t stop you from evaluating the market rent every 12 months.

How does the landlord increase the rent on a periodic tenancy?

Every 12 months, after the initial 12 months, a landlord can increase the rent of a property. It used to be every six months, but that was changed in August 2020.

For periodic and fixed, there must be a written notice at least 60 days in advance of any rent increase.

In a periodic tenancy, advance notice can be given ahead of the initial 12-month period, but the actual rent increase can only take effect at that 12-month mark.

Periodic tenancy – what are the pros and cons?

There are pros and cons for periodic tenancy.

Pro #1 Longer Tenancies

On the pro side, tenants will often stay for longer because they feel more secure without a fixed end date.

Fixed term is better for transitory tenancy, especially furnished properties because people can get up and leave more easily.

But for properties that are suited to more long-term tenants – for instance families with kids going to school – a periodic tenancy may be better suited.

Pro #2 Flexibility

In turn, this gives you – the owner – more flexibility. For instance, if you wanted to move into or sell the property.

Con #1 Tenant Can Leave

On the other hand, tenants that aren’t locked into a fixed tenancy can leave at any time. Sure, they have to give 3 weeks’ notice, but they may leave during a slow time in the market. If the move-out date is just before Christmas you may find yourself with a few weeks of vacancy.

Con #2 Hard To Get Rid Of Tenant

It can also be hard to get rid of a tenant on a periodic tenancy. As the landlord, you can’t just give them notice to move out anymore.

Having said that, it’s not always easier to get rid of a tenant on a fixed term either. This is because the fixed term either automatically rolls over to periodic, or there is another fixed contract.

Con #3 Forget To Increase Rent

Without a specific date already picked out, sometimes landlords can forget to up the rent every 12 months. This is because years can roll over unnoticed, without time structure to the tenancy.

Periodic vs fixed – which one should I use?

All things considered, your property will have a lot to say about what sort of tenancy agreement will best suit your situation.

For instance, if you’ve got a large family home, in the suburbs, renting to a working couple and their children, it might be a better option to have them on a periodic tenancy so they feel secure in their home without a fixed end date.

Whereas a townhouse or an apartment, which is more likely to attract a transient tenant, might be better suited to a fixed-term contract.

Write your questions or thoughts in the comments section below.