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The PROPERTY DOCTORS, Sydney Australia Novak Properties
EP. 1453 LEASES ARE FOR LOSERS times have changed
Remember when a 12-month lease meant an ironclad commitment from both sides? Those days are rapidly disappearing in Australia's rental market.
Property management veteran Cleo Whithear unpacks the dramatic shift happening with rental agreements nationwide. The traditional fixed-term lease – once considered essential for both landlords and tenants – is increasingly being viewed as unnecessary baggage in today's rental landscape. This transformation reflects a broader societal move away from rigid contracts, mirroring trends we've seen with phone plans and gym memberships.
What's driving this change? Recent legislation has strengthened tenant protections regardless of contract type, while creating a striking imbalance in termination powers. Tenants can now exit contracts with minimal penalties, while landlords face nearly insurmountable hurdles to reclaim properties during fixed periods. As Cleo explains, "We have only one or two cases where owners were permitted to ask tenants to move out early" – one involving a refugee returning from war-torn Afghanistan.
The traditional concerns that made fixed terms attractive to landlords have also evaporated. With Australia's tight rental market, properties lease quickly regardless of season, and new tenancies often command higher rents than continuing ones. This reality has many property owners questioning why they would limit their flexibility with fixed terms when the market heavily favours them anyway.
Despite this shift, the initial lease agreement remains crucial. This foundational document establishes the terms that will govern the entire tenancy relationship, with modern agreements covering everything from pet ownership to digital communication methods. Whether you're investing in property or searching for your next home, understanding this evolving landscape is essential for navigating Australia's rental market successfully.
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Real estate agents, property managers across the country, tenants, landlords. The landscape has changed with leases. We're going to talk about it right now. Stay tuned. Cleo Ritchie, expert property manager of how many years Too many oh.
Speaker 2:Of how many years Too many.
Speaker 1:Oh, cleo. This has come up every year and the crunch time is here for leases, fixed-term leases. Airbnb started the trend Don't worry about a bond, don't worry about length of term, just come on in and start paying. Don't worry about a bond, don't worry about length of term, just come on in and start paying. And now we're starting to see some trends across the real estate industry with fixed-term leases Talk to us.
Speaker 2:Well, what brought this about is probably the new legislation that's come in, as well as, obviously, tenants and the shortage of property. So security for the tenant is very important, whereas locking a tenant in for a fixed period is not as important to the landlord. If you have a tenant that vacates, you most likely, probably 80% of the time, will probably garnish a bit more rent. If you put the property on the market now, from what, uh you would, you know, continuing on with a long-term tenant, and tenants usually that ask for a fixed term are, you know, families, people that are needing that contract for schooling and also sometimes for insurances.
Speaker 2:So if you have contents insurance and the big companies do prefer that, you have locked in contract nowadays the break lease clause for a tenant towards the end part of the lease 75% if that's actuated. They only have to pay a one-week break-lease fee to end the contract, leaving the owner, you know, sometimes out of probably about four weeks, four to five weeks worth of rent. So yeah, it is a little contentious point for tenants and landlords. On both sides we have always had a bit of an ethos to leave a tenant month to month in our office as in they're still protected by the original terms of the contract. Your rights are still the same, you just are fixed, locked for a term of 12 or six months and and it seems that there's everything's going that way.
Speaker 1:You know in a way, but you know the the days I think of the old-fashioned days was you make the commitment, you're in, you're not getting out of it. You've made the commitment and it's mutual. If I'm a landlord and I'm giving you a commitment for 12 months and you're a tenant, you make that commitment for 12 months. You've both made that commitment, but over the years it's changed. It's like sure, you've made the commitment, but you know, mr Landlord, you can't get out, but Mr Tenant, you can. If so, it seems like you know the old-fashioned sort of handshake and you know we're both going to commit to 12 months out the window. So why are you going to do a lease?
Speaker 2:Yeah, look, you can get divorced at any time. Yeah.
Speaker 1:Yeah.
Speaker 2:The tenant can get out of the contract for a lot of different reasons. I had a landlord ask me a little while ago well, how do I get out of the contract? And I go. Well, very, very difficult, like it's, you have to prove extreme financial hardship at ncat to get a tenant. In fact, we have only in the history of such a long time being property managers have one or two cases where the owners were permitted for the tenants to be asked to move out early, and one of those reasons was because the owner was returning from Afghanistan and it was a war happening at the time and he came through as a refugee and he needed the property back. That was one of the only times I've heard of a tenant asked to leave during a fixed term.
Speaker 2:So it can happen, but it's like the rainbow unicorn it's very rare for an owner to be able to get possession back once a tenant's locked in for a period.
Speaker 1:Okay, so I'm a landlord, You're a property manager. My tenant's lease was for six months and I'll ring you up and go. I want another 12-month lease.
Speaker 2:What do you say? I say, sure, we can definitely sign the tenant up for another 12 months. It doesn't impact or affect rent increases. You can still only do one per year. So having your tenant locked in for a 12-month period at a certain fixed rent doesn't really factor in. But if circumstances change for you, Mr Landlord, it's going to be very difficult to make those changes. For example, if you were planning on selling or having a family member move in, having the flexibility of a month-to-month contract will allow you to make those changes, whereas a fixed term will not. You are locked in for that period with that tenant.
Speaker 1:But, cleo, I think what people shouldn't forget is it's the whole emotion of I want my unit back or the tenant I want to stay here. None of that's fundamentally changed. Yeah, sure, you know, 12-month lease, two-year lease, six-month lease, whatever, but at the end of the day the drivers haven't changed. So the tenure, the actual true tenure of the tenant in that property is similar. Do you know what I mean? So this they're not staying longer or shorter because they're, not because of these fixed terms, but certainly that old-fashioned way where we used to say no, no, no, no, no, I don't want it, not on a lease, they're gone because when that lease expires, all of the terms continue, just the fixed term doesn't continue. And people seem getting pretty comfy with that these days, even with phone contracts look at Telstra you know when you used to always want to, you know have to be on a phone contract and those days like no, no, no contract, that's fine.
Speaker 2:Same with the gym. You know the gym memberships now. You know Fitness. First used to lock you in for 24 months. That contract was ironclad. I never went, I went once or twice a month.
Speaker 2:And they still charge me that clockwork. Look, the main reasoning for a fixed term in the past was controlling the tenant's vacate or relet, and the fear was I don't want my tenant moving out during winter. Winter is the worst time to relet my property. That's gone now. As you said, that's really not relevant in our climate. Whether it's winter, christmas, spring, autumn, the market's hot. If your tenant moves out now in August, september, it doesn't really matter. You know we still will rent that property out quickly. Your vacancy rate's going to be low and you're going to get more rent anyway. So what's the reasoning for signing them up? You know. So, yes, the landlord's become more secure and more relaxed in not needing that fixed term, I feel. And the tenants also have that trust now with the new legislation that they can't just be asked to move without a valid reason. So I think it's a win-win. It's less paperwork for us.
Speaker 1:Yeah, but that's right because it's not a dollar productive. You're not charging a letting fee when that new lease gets put in place. Now, one thing I also. Our headings are leases are for losers. Let's clear this up. First of all, the initial lease got to do. It got to get those terms right. It's the subsequent relets, or you know, redoing a lease with the same tenant. That's not being done. And then there's the word which I think leases for losers is probably more relevant with. We're not allowed to call them leases.
Speaker 2:It's a contract.
Speaker 1:Or agreement lease agreement Lease the residential tenancies agreement is the New South Wales term Lease? It is not, although in commercial I believe it is, but residential it is not. But you know how many people still don around the word lease in resi all the time.
Speaker 2:And look, they've evolved over time. Remember you, could you know? If you were private owner, you could go to the post office and they'd give you this pink lease agreement and you'd see some of those old handwritten lease contracts and you're like what?
Speaker 2:There's no fixed term, what do you mean? The rent's not put on here, like they've been very, very lax and they have come a long way. Our lease contracts now are very, very detailed. You've got so many new clauses that weren't in the old leases or lease agreements the you know pet clauses, for example, being able to rescind digital notices, which is huge, things like that. You know you've got all the statutory requirements now the landlord information statement, the tenant information statement, all these things that were never really included. So that first initial lease agreement is very important that you as the tenant go through that thoroughly and as an owner, if you have particular things that you want in there, that you advise your agent and then those things will carry on and carry on and carry on year after year. It doesn't matter if it's signed or not signed after the 12-month or six-month period.
Speaker 1:Those initial terms will still carry on, claire Whittier, thank you very much.
Speaker 2:I hope we helped some tenants and landlords out there today. You've gone urban today, mark. Definitely a great landscape in the back very chill, thank you.
Speaker 1:I bought this cap and I didn't realise it said douche. I never got that brand. Very, very chill, thank you. I bought this cap and I didn't realize it said douche. I was like that's so cool. It's like, oh, it says I'm a douche it's douche all right, have a great day. Bye thanks.