Periodic vs fixed-term lease: What’s better for you?

Australian renters starting a new lease will generally be presented with two options: a fixed-term lease or a periodic lease. 

Both have varying features including the length and security of the agreement. So, which one is right for you?

What’s the difference between a fixed-term lease and a periodic lease?

Kasey McDonald, head of leasing at property management agency Different, explained a fixed-term lease is a lease agreement that has a start and end date.

The end date, rent amount and terms of the lease can’t generally be amended during the period of time, which gives both parties security. In some, but not all states, it’s possible to build in set rent increases. 

A periodic lease, also sometimes called a rolling tenancy or month-to-month lease, is a lease agreement that does not have an end date and continues until either party gives notice. This must be in writing and specify when the agreement will end.

What’s the notice period for a fixed-term lease?

A fixed-term lease can only be terminated in one of three ways: at expiry, by mutual agreement or with a tribunal order, unless the tenant executes the break lease clause, Ms McDonald said. 

What’s the notice period for a periodic lease?

The rules around the amount of notice required for a periodic lease vary from state to state.

There’s a common misconception that tenants must provide a month’s notice, but that’s not always the case. In Queensland it’s 14 days, in New South Wales it’s 21 days and in Victoria it’s 28 days.

Benefits of a fixed-term lease

As with any agreement between two parties, there are benefits and drawbacks of a fixed-term lease. Ms McDonald explained some of the benefits. 

“The tenant can feel confident knowing their rent will not be increased during this period, so they can also manage their budget,” she said.

If an increase is built in, as is allowed in some states, the tenants know upfront, she added.

One of the benefits of a fixed-term lease is knowing rent cannot increase during the agreed period. Picture: realestate.com.au/rent

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Another benefit is security. Tenants can feel secure knowing that unless there are exceptional circumstances, the owner can’t take possession of the property until the fixed term expires.

“It’s important to highlight that if the property is sold during the tenancy, the property is sold with the tenancy in place,” Ms McDonald said.

Risks of a fixed-term lease

There are also downsides with a fixed-term lease.

“Unless a tenant applies to a tribunal under hardship or executes a break lease clause, they’re not able to take advantage of weakening market conditions,” Ms McDonald said. That means they can’t seek lower rent if the local market drops.

And if a tenant’s circumstances change and they need to move, they’re responsible for the rent until a new tenancy begins, as well as for leasing and marketing costs.

Benefits of a periodic lease

There are a couple of advantages with a periodic lease, Ms McDonald explained.

Under a periodic lease, tenants have flexibility when it comes to the term, meaning they can vacate when they need to and aren’t locked into a long-term commitment.

“Tenants are also able to renegotiate the rental amount if the market decreases with a periodic lease,” Ms McDonald said. 

Risks of a periodic lease

On the downside, tenants miss out on security with a periodic lease. This is because they can be evicted or have their rent increased with minimal notice.

What’s better for you?

A tenant should take into account their own personal circumstances and plans for the future when deciding which type of lease is best for them, Ms McDonald said.

“If they’re looking to buy, but haven’t found the perfect property yet, a periodic tenancy may be a good option.”