How long term leases can solve rental woes

Independent Property Group 5 July 2018 18
Tenants will no longer need to frequently move with the introduction of Independent Property Management's long term lease program. Photo: File

Tenants will no longer need to frequently move with the introduction of Independent Property Management’s long term lease program.

Catherine still has possessions in storage from the last time she moved. It didn’t seem worth finding spaces for them all when she knew she’d have to box them all up again in a few months, so now she’s paying for a storage unit as well as her rent. She’s already moved four times in the past five years, and her lease is up in six weeks. She’d love to buy some plants for her balcony, or hang some paintings on the wall, but it doesn’t seem worth it when she’ll just have to move again shortly.

Independent Property Management hear several tales like Catherine’s. These are tenants who want nothing more than to settle down in one spot, find their favourite local cafe and introduce their children to the nearby schools. But instead, they’re asked to move by landlords who want to sell up, move in or renovate. Some landlords also only offer six-month leases, and because there’s such a tight vacancy rate, tenants like Catherine might find themselves with no choice but to accept six months.

For landlords, too, short lease terms can create problems. A high turnover of tenants means that the property is more likely to experience periods of vacancy, with all the associated costs of advertising and qualifying and approving new tenants each time. Tenants moving their possessions in and out of the property also means more wear and tear – before you know it, you’re repainting again.

Canberra has continued to have the country’s tightest rental market throughout 2017, at a squeaky 0.8% vacancy rate. That’s made life harder for tenants, and with more and more families moving into Canberra, something needed to change.

But there is hope for Catherine and the hundreds of other tenants looking for a long-term solution. This year Independent Property Management introduced long term leases, a program created to provide landlords and tenants lease terms of up to five years.

This can be a win-win for both tenants and landlords who are provided with both financial security and peace of mind. But in a world of legislation, contracts and rules how does something like this actually work?

“We surveyed both landlords and tenants about the idea, and the thing that came up on both sides was the desire to have a one year ‘trial period’ before committing themselves to a longer term.” Hannah Gill, Director of Independent Property Management, explains.

After a lot of research Hannah and the team created a scheme where:

  • Long-term leases will be offered as a one-year lease in the first instance, with an option to renew for two, three or four years after that first year if both parties agree
  • The agreement includes a predetermined annual rent increase, either a percentage or a dollar value increase
  • If all goes well in the first year and parties agree, rental inspections may be reduced from two down to one per year. No more midnight grout-scrubbing sessions!

Long lease terms are new to Canberra so not yet fully supported by the current tenancy legislation, but the Independent Property Management team are not easily daunted. “We came up with the necessary tribunal endorsements for clauses to support long leases if both parties agree”, explains Hannah.

Hannah Gill

Hannah Gill says tenants will love the security and peace of mind of a long-term lease.

How does this scheme benefit people like Catherine?

Tenants can enjoy the security and peace of mind that comes with knowing that they can stay put for several years. As their obligations under the Residential Tenancies Act are already pretty clear, there won’t be any extra requirements as long as they pay rent and keep the place in good order. There also won’t be unexpected rent hikes so a tenant has more ability to forward plan their finances.

Catherine, who’s finally signed a long term lease, is pretty thrilled. “We’ve always been really hesitant to invest in plants for the balcony or artwork for the walls before, but knowing we’ve got years ahead of us makes me excited about investing in things that make the house a home. At our last apartment, with so much of our stuff in storage, it felt like a long-term hotel. Now there’s an emotional attachment and no stress”.

What makes the scheme attractive to landlords?

Landlords have the security of knowing that their tenant will stay for the long term, avoiding vacancy periods and end-of-lease costs, and by including rent increases in the lease they can project their cash flow into the future.

Extra conveniences are offered to the landlord so that their cash flow isn’t compromised by the longer term.

“We include an asset register as part of the service”, says Hannah, “where we outline and recommend a proactive maintenance plan and budget for ongoing upkeep”. A small percentage of the weekly rent – between $10 and $20 per week – is kept back in a sinking fund, to be made available for large maintenance or renovation jobs at the end of the lease term. That way, landlords aren’t left having to find spare cash to replace carpets and dealing with a vacancy period to boot.

Independent launched long leasing in January this year and so far, has attracted a lot of interest from tenants and landlords.

“This is a relatively new idea to Canberra, but very standard practice overseas. In some European countries, it’s not uncommon for people to sign leases for ten years or more. Tenants love the security and peace of mind that’s offered when they have a home for longer. The landlords are pleased to know they have a reliable, responsible tenant who’s committed to staying in the property long term.”

And for people like Catherine? Well, she’s just looking forward to some stress-free years with no rental applications, moving boxes or storage sheds.

If you are a tenant or landlord and would like more information on long term leases, contact the Independent Property Management team today.

What do you think – as a tenant or landlord, would you explore the idea of a long term lease?

This is a sponsored article, though all opinions are the author’s own. For more information on paid content, see our sponsored content policy.

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18 Responses to How long term leases can solve rental woes
Catherine Ford Catherine Ford 8:14 pm 08 Jul 18

The idea sounds good but you’d need to read the lease very carefully, especially if there are termination clauses that the landlord can use to terminate the lease before it expires! If the landlord can terminate the lease before the expiry date of the lease (even if it’s for a period beyond the usual one year) then the tenant may not be any more secure than using year-long leases - at least under a year-long lease, tenants cannot be evicted until the term of the lease has expired. Also, if there are yearly rental increases automatically included in the extended lease, there are no incentives for “good” tenants to be rewarded with no rent increases or for no rent increases to apply for particular years to reflect market conditions. As with all these things...the devil’s in the detail!

    Independent Property Group Independent Property Group 5:48 pm 09 Jul 18

    Hi Catherine,

    You make some great points – we’ve allowed for a termination clause so that if the owner needs to sell there are protections for the tenant. We always appreciate a good tenant so if for some reason the tenancy did end earlier, we’d help them find another property without having to go through the full application process again.

    We know rent increase is a real concern for tenants. In a long term lease, both parties agree upfront on what the amount or percentage of increased rent will be. This helps to avoid any surprises and means both the tenant and landlord have an understanding and clear expectation on what’s been agreed upon. Having a predetermined amount is much fairer to both parties as both can budget and not get hit with unexpected huge increases year on year.

    As always, we’d encourage both landlords and tenants to read the lease terms very carefully. We’re big believers of this program so happy to answer any questions they may have!

Maya123 Maya123 8:02 pm 08 Jul 18

Are there short term ones too? Say if the owners only wanted to rent the property for a few years, or might not be certain of how long they want to rent it.

karun8 karun8 6:20 pm 08 Jul 18

Currently I’m renting in Germany and here it is normal to sign a unlimited contract and one doesn’t have regular rental inspections like in Australia.

    JC JC 8:38 pm 08 Jul 18

    For the most part our leases are essentially unlimited anyway. In that there is usually a fixed period which flows onto a month by month basis. And even on month by month the landlord has to have a good reason to terminate the lease rather than just a whim.

    If anything this type of lease favours the landlord as one would assume there would be some penalty if a tenant breaks the lease early.

Cate Furey Cate Furey 5:09 am 08 Jul 18

I love this idea, but would need to know that our rental could be made more energy efficient before committing to a longer lease. By "more" I actually mean it's not at all efficient at the moment. The thought of paying increasing rent on top of increasing energy costs hurts.

    Julie Macklin Julie Macklin 10:21 am 08 Jul 18

    The condition of the house should be reflected in the rental price. I used to rent out a house which was low energy wise, but it was also a low rent. If I had been forced to improve the energy efficiency the rent would have gone up. (In case anyone thinks the landlord doesn't have to live this way themselves; not necessarily true. The house I lived in was even worse.) I didn't want to spend money on the rental property (or my own house) as I planned to rebuild and was saving. The rental property has now been replaced with a highly energy efficient house.

54-11 54-11 10:43 am 07 Jul 18

As landlords, we would welcome longer-term tenants. Tenant churn is a real pain and we’d be happy to negotiate a lower rental for a lengthy commitment. The problem with that is a tenant could say they will be there for a long time, then quit after a short while having gained the benefit of a lower rent.

Katrina Maciver Katrina Maciver 8:49 am 07 Jul 18

We have been in 7 houses in 9& a half years. It costs a fortune every time we move. We can never start saving because it all goes on moving and cleaning. I love this idea.

Arety Kr Arety Kr 8:27 am 07 Jul 18

I've been doing this for years for our properties...

Kate Cuthbert Kate Cuthbert 9:33 pm 06 Jul 18

Fantastic idea!!!

PJPentony PJPentony 8:35 pm 06 Jul 18

Love this idea, as both a former tenant and landlord it is a win win. In Europe people can lease a house for 30 years, they then take on responsibility for styling and internal renovations (with landlords agreement). If you had long term security you would be happy to make investments in your home

independentpropertygroup independentpropertygroup 2:29 pm 06 Jul 18

Hi Jim – exactly right, we need to be finding housing solutions that work well for both the tenant and landlord. The more research and work we can do with innovative housing options, the better.

Jim9 Jim9 10:10 am 06 Jul 18

The Government needs to move on this sooner rather than later. Good to see a real estate taking a lead in this space – long term leases are very common in Europe in particular, and can be a good outcome for both sides.

    JC JC 9:23 am 07 Jul 18

    What does it have to do with government? Except government houses rentals are a private agreement between the property owner and the tenant. And it would seem the current legislastion allows it.

    So what exactly does government need to do?

    Jim9 Jim9 11:04 am 09 Jul 18

    Did you even read the article JC?

    “Long lease terms are new to Canberra so not yet fully supported by the current tenancy legislation, but the Independent Property Management team are not easily daunted.”

    While noting that IPM have found a way to make it work, surely it would be best if tenancy legislation was updated as well to make it fully compatible with this possibility….

    JC JC 6:43 pm 09 Jul 18

    Quote the rest.

    “We came up with the necessary tribunal endorsements for clauses to support long leases if both parties agree”

    So I ask again what legislation changes are required by government if the leases can be accommodated within the existing legislation?

    Jim9 Jim9 9:13 am 10 Jul 18

    Come on JC – you know as well as I do ‘Tribunal endorsements’ are not a substitute for ensuring the appropriate legislative framework is in place….. especially when the whim of the Tribunal is just that – it only takes a change in personnel for that endorsement to suddenly disappear.

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