New Tenant is asking for 2 year lease. Should I or shouldn't I?

[The_Bludger]

New tenant is asking for a 2 year lease before they sign. Not sure why? Security, piece of mind, who knows.

If I do decide on giving them a 2 year contract, agent will put a clause in there to allow a price increase after the first year to market rate, but is there anything else I should look out for?

Is this common practise and should I offer it to these people or stick to a 1 year contract? Bit worried as I don't know them(although they have a good reference).

What would you do and why?

 

[luvvit]

Personally Bludge, the way that rents are constantly moving, I'd be happy to get the tennant to sign a 2year lease, but also put in reviews for possible rent rises to market value every 6 months... not after 12 months.

Also I'd make sure the agent has thoroughly vetted the tennants.. I got caught that way, 12 month lease to deadbeats that did a runner and cost me 5k to get my unit back to habitable.

Luvvit

 

[Alabex]

If there is going to be a clause to increase the rent why do they want to sign such a long lease?

Most people should be happy to sign for 12 and then renew at the end...

 

[Norwester]

The Bludger,

I have one set of tenants on a two year lease that commenced in January this year. You can include a rental rise for the second year.........but it has to be specified at the start of the lease, it cannot be CPI adjusted or market rate based (presuming that the property is in Victoria).


ciao

Nor

 

[Dazz]

What would you do and why?

I wouldn't muck around with a little 2 year lease. Not worth my while. You'll be forever doing paperwork with PMs, churning their crank handle.

Tell 'em when they are serious to get back to you with a decent proposal.

 

[The_Bludger]

The Bludger,

I have one set of tenants on a two year lease that commenced in January this year. You can include a rental rise for the second year.........but it has to be specified at the start of the lease, it cannot be CPI adjusted or market rate based (presuming that the property is in Victoria).


ciao

Nor

That's interesting, thanks! You know more than my PM, as she was saying that we can set the rent accordingly at the end of the 1st year. Did you include much of an increase at the end of the 1st year?

 

[knightm]

Are these resi tennants? I thought the Residential Tennancies Act limited the amount of time a resi lease can last (vague memory that it is 18 months here in NSW but could be wrong) If its longer it becomes a commercial lease???

 

[kyliej]

I signed a tenant to a 2 year lease only once in my 10 years as a property manager. All checks were good but 6 months in she got into financial problems. we went to Tribunal 3 times. after only 6 months in I was wishing Id only signed a 12 month lease with an option to renew for a further 12 months. In south australia it is so hard to get bad tenants out if they are not caring for the property to a high standard and what happens if they just turn out to be pains in the A**, always asking for repairs etc.,. I would say dont over commit yourself.

 

[twobobsworth]

If it was resi I probably wouldn't do it. Maybe 12 months tops. What if something happens that you haven't planned for and you need to sell. With a long lease in place it will limit your pool of potential buyers.

 

[josko]

I assume this is a Resi lease or you would not be asking them why they wanted a 2yr. I thought Daz was being awefully cheeky at first, but I think he thinks it was a Commercial.

I was told by my QLD Solicitor that there is nothing longer than a 12 month lease and would be suprised if there were. A contract can be entered into, but as far as a residential Lease is concerned the maximum was 12 months. But then that was QLD not NSW.

Back to the problem if it is one,

I would put 6 mthly increases in. Don't be naive and think your tenant won't be calling in Plumbers, Electricians and Repairman every now and then. Petrol is up...so too will be trade costs.

Regards Jo'

 

[wylie]

Totally agree with twobobsworth. Maximum lease we give is twelve months for exactly that reason (as well as other reasons). The pool of buyers prepared to sit out the tenancy agreement is small, and it could lose you a sale if you had to sell for any reason.

We have a twelve month lease due in January. I wish now that I had given a six month lease because the rent increase in January might just scare them off, whereas two smaller ones may see them stay.

It is a trade off though, because we could well have lost a week between tenants if they left after six months, so it is a "chicken or egg" thing really.

 

[josko]

Totally agree with twobobsworth. Maximum lease we give is twelve months for exactly that reason (as well as other reasons). The pool of buyers prepared to sit out the tenancy agreement is small, and it could lose you a sale if you had to sell for any reason.

We have a twelve month lease due in January. I wish now that I had given a six month lease because the rent increase in January might just scare them off, whereas two smaller ones may see them stay.

It is a trade off though, because we could well have lost a week between tenants if they left after six months, so it is a "chicken or egg" thing really.

Hey Wylie,

Why don't you just put the increases into the 12 month lease like I do. That way everyone is happy. tenant's know what is coming and have stability and you get your increase.

Regards jo

 

[twobobsworth]

What if the tenants are crap. Much easier to give them notice to vacate when they are on month to month or at the end of a 6 month lease.

This is about risk management. If the property is in a rural area or it's hard to rent then yes maybe it's a good idea. If its in a metropolitan area there seems to be more cons to me.

 

[wylie]

Hey Wylie,

Why don't you just put the increases into the 12 month lease like I do. That way everyone is happy. tenant's know what is coming and have stability and you get your increase.

Regards jo

Thought about doing that, but to be honest, were just happy to get good tenants after having it empty for a few weeks while we painted through and put a new front door and front steps in.

Next time, we will do it though.

 

[Wishlist]

I would recommend only 6 months for starters until you are sure that you are happy with the tenants. Have your PM communicate to the tenants that you will be happy to offer a longer lease after the initial 6 months has worked out to everyone's satisfaction.
With rental vacancies so low it shouldn't be an issue to get other tenants if those wanting a two year lease back out.

Wishlist

 

[Somerville]

I agree. I prefer to sign new tenants up for only 6 months initially. Tenants can look really good on an application form but the true test is after they move into the property. The lease is then usually extended for another 12 months or they carry on month to month (good opportunity for rent increases at that stage).

I wouldn't ever sign a tenant up for 2 years on a residential lease. Tenants can break out of leases fairly easily so the added security isn't even that amazing. The way that rents are going & the fact that it is easy to find new resi tenants (depending on the property & area) there really isn't any point.

You also need to think that what if you need to move in or sell etc.

 

[Sonya@RenoKings]

Rising Rents, Low Vacancy Rates

There are a few different opinions out there!

As we are in times of quite low vacancy rates and rising rents, as an investor I don't want to lock into a tenancy agreement that might have my income (from the property) behind the market value by the end of the tenancy agreement.

As we don't know HOW MUCH rents will rise, and as others have indicated, there are other difficulties with long tenancies if you get a 'bad' tenant, it seems to me that short tenancies are more attractive (as a landlord) than long tenancies.

Personally, I have been putting my tenancies to 6 months. In one case the tenants wanted a 12 months lease, so I estimated how much the rent was predicted to move over the 12 months (according to Michael Matusik's predictions for Brisbane) and wrote in a $20/wk increase after 6 months. (It actually calculated to be $25/wk, but that seemed a bit high!) The managing agent had suggested $10/wk, which I suspect was a random number they 'always use'.

I believe as landlords we should do our research and know what our rentals are worth - it's our business after all!

Sonya

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