Protecting your interests with the right lease term

Wednesday, 7th Mar 2012

Little thought is often given to the length of a lease. However, choosing the right lease length can benefit owners in more ways than one.

When leasing a property, one of the areas that often doesn’t receive enough thought is the length of the lease.

Most residential leases have a typical length of six months, twelve months or even twenty-four months, but there are circumstances where it’s beneficial to deviate from the norm. If you have plans to renovate or sell the property in the near future, then it would be wise to consider a shorter lease as it’s very difficult (if not impossible) to move a tenant on when they are signed under a fixed lease. However, shorter leases can expose owners to more frequent periods of vacancy and higher management and maintenance costs.

On the other hand, longer leases provide stability and security for owners, which can be particularly important for those who have a large mortgage on the property. The risk in offering a long lease is that owners can be stuck with tenants they aren’t happy with and have less flexibility over their investment should their personal or financial circumstances change.

Owners and property managers should also consider the overall portfolio of the owner when setting the lease length. Preferably, owners should not have all their properties’ leases expiring close to one another. In the event one or more tenants decide to move on, the owner could potentially be left with more than one property being vacant at the same time. Lease periods should instead be staggered to protect the owner’s cash flow. This could mean setting a more unusual length like 8 months or 13 months for some leases.

There may also be times of year when leasing a property can be more difficult, for example the week of Christmas. In this situation, the expiration date of the lease should ideally be adjusted to fall a few weeks before or after this time to minimiseany possible vacancy period.

Good property managers don’t just manage your property; they appreciate the needs of an investor and always go one step further to ensure your best interests are managed also.