Fixed Term or no Fixed Term?
What are the benefits to having a fixed term lease for your tenants.
I hear many landlords indicate there are no benefits to having a fixed term lease for your rental property. The benefits may lean more favourably to the tenants in certain areas, though there are benefits for landlords as well.
The main benefit to the tenant during a fixed term lease is the tenants have the right to stay until the term expires. This provides them with some stability where they live until the end of the term. Their rent is unable to be increased until the term expires.
In BC there are provisions on ending a fixed term lease. When a tenancy is started by a fixed term lease the landlord and the tenant must agree to one of two ways the lease is formed. The first being at the end of the fixed term the tenant moves out. In BC the only reason this clause can be used is if the owners or close family members are moving into the property when the lease expires. This clause eliminates institutional owners from having a clause where a tenant must vacate at the end of the term. If the owner or family is not moving into the property then the tenancy automatically becomes a month to month tenancy at the end of the fixed term.
After the original fixed term expires, the landlord and tenant are able to agree to a new fixed term lease, it doesnt have to become a month to month tenancy.
Some of the benefits to the landlord for having a fixed term are, tenants are providing a commitment to stay at the property for a specified time frame. If the tenant elects to leave the term early they may be held responsible for unpaid rent during time the unit was not rented. This can be a portion of the month it doesn’t need to be the full month. In this situation the landlord has an obligation to mitigate their loss, which means they must diligently try to find a replacement tenant.
During a fixed term tenancy it is less likely the tenant will provide one month notice to vacate due to the potential of being required to pay for time the unit is not rented. It is more likely they will stay to the end of the tenancy. This reduces turnover rates, which can be favourable and unfavoruable to landlords. Searching for new tenants is a time consuming process.
In all tenancy agreements landlords should have a liquidated damages clause. A liquidated damages clause outlines the cost associated with terminating a fixed term tenancy. This can include the cost, management companies placement fees, of the landlord finding a new tenant, if it is a reasonable cost.
Some financial institutions are asking for a fixed term tenancy when doing refinancing of the property. This gives them some assurance the unit may have funds coming in for a specified period of time.
The fixed term agreement also provides recourse for landlords seeking compensation after the tenant has vacated early. When a tenant terminates early and the landlord proceeds to a tenancy hearing, leaving a fixed term is viewed as a breach of contract by the tenant and they will be held responsible for required costs.
In general a fixed term can provide stability to both the landlord and the tenant for the time of the fixed term. It is important for landlords to review what their short and long term expectations are for their rental property before entering into a fixed term.
Cartref Properties can assist you, call today to discuss your needs. You can find more information about us at: www.cartrefproperties.com
