Which is best: a fixed-term agreement or a periodic agreement?
Whereas fixed-term agreements have definitive start and end dates, a periodic agreement—also known as a “month-to-month” agreement—has no end date. Each has its pros and cons, all of which should be considered for the affects they may have on you.
- Provides a more consistent income, offering greater security and peace of mind.
- Enables you to more easily forecast and budget for repairs and other expenses.
- Allows for rent increases to be written in.
- The term can end during peak rental seasons, giving you more control over your property and a greater ROI.
- Ending a fixed-term agreement requires the tenant be provided with a two-month notice to leave. Should a tenant wish to leave before the fixed term’s expiration, they are required to give a 14-day notice when ending the agreement.
- The tenant has the right to dictate when the agreement is ended.
- A commitment to a particular duration of tenancy is not required by the tenant beyond the period necessary for the notice.
- The opportunity for rent increase is often missed — the tenancy continues undisturbed unless the agency diligently monitors all periodic agreements.
- Tenants may end the agreement during slow seasons, which may result in longer vacancies, leading to potentially significant losses in income.
- If vacant possession is required, the lessor/agent must provide a two-month notice to leave without grounds.
Carefully consider your investment property’s overall goals before deciding on the term that suits you best. While periodic agreements may provide more flexibility for those wishing to sell or develop the property, fixed term agreements provide greater security and control of your investment, as well as greater peace of mind.
Be sure to discuss your investment goals with your property management agency. Provided you have no immediate goals for your property that require vacant possession, coordinating a fixed-term agreement with peak rental seasons may prove the more beneficial option.