When it comes to residential property management, there are several rules and laws that must be followed in order to ensure landlords don’t end up facing a cantankerous residential tenancy tribunal judge.
One of the areas that can create confusion is lease renewal and the termination of tenancies.
This is why it’s so important to understand exactly what rights and responsibilities both the tenant and landlord have.
Even though this might seem like a straightforward process, landlords must dot all “i’s” and cross all “t’s” in order to prevent any future complications.
Understanding the terms of lease renewal
The critical requirement with regard to any rental agreement is to have a thorough understanding of all clauses contained in the lease, particularly those pertaining to the initial term, vacancy date, and lease renewal options.
Generally, lease terms will either be fixed tenancies for a specified period such as six or 12 months or periodic agreements which usually “roll over” on a monthly basis.
Essentially if you, the owner, wish to renew the lease or end the tenancy for any reason, you need to put your intentions in writing to the tenant.
This is needed regardless of the type of agreement both parties have entered into.
Landlords also need to be aware of the required timeframes to do either of these things.
Whether terminating or renewing the lease or increasing the rental, tenants must be given sufficient notice under the Residential Tenancies Acts that govern most states and territories.
What is the lease renewal notice period?
The least renewal notice period is the amount of time you need to give a tenant to renew or terminate their current lease.
Individual states have different guidelines on what must be put in a lease renewal notice, how long you have to send the notice, and who can receive a notification.
As a general rule of thumb, a landlord must give 30 days' notice to terminate a fixed-term lease at the end of the term or 90 days' notice to terminate a periodic lease at any time.
If the landlord wants to renew the lease then they have to give 60 days’ notice if they wish to increase the rent, or they just need to advise the tenant before the end of the fixed term if they want to renew the lease on the same terms.
However, these timeframes can be different depending on the grounds of lease renewal or termination - such as if the landlord wants to sell the property, the tenant has failed to pay rent breach of the tenancy agreement by either the landlord or tenant.
On the other hand, a tenant only needs to give 14 days' notice if they want to end the lease at the end of the fixed term, or 21 days' notice to end a period agreement at any time.
Who pays a lease renewal fee?
Tenants are not liable for paying lease renewal fees.
A property manager's fees usually cover sourcing good tenants and managing the lease on your investment property on a day-to-day basis.
The cost usually includes things such as organising and managing the payment of bills, council rates, strata levies, and other ongoing costs, collecting rent and chasing arrears, and organising maintenance and repairs.
But there are a few things that a property manager’s fee doesn’t cover - one of which is the lease renewal fee.
The lease renewal fee, payable by the property owner, is usually equivalent to one or two weeks’ rent and covers the cost of preparing a lease contract and advice on rent pricing.
What to include in a lease renewal notice to a tenant
If you are renting out a property on a periodic basis, there is no need to give a lease renewal notice to the tenant.
The periodic lease will continue (with the original terms and conditions) until you or your tenant decide to end the agreement by giving notice.
If you are renting your investment property out under a fixed-term agreement and want to move to another fixed-term lease, then your property manager will need to organise and send the tenant a renewal of lease letter at least two months before the lease is due to end.
Within the letter, your property manager can also notify the tenant of any proposed changes to the terms of the lease. For example, if the rental provider or landlord is proposing to increase the rent, or to change some other terms of the lease, these changes can be summarised within this letter.
It’s worth noting that the new agreement can include different terms and conditions from the first agreement.
The lease renewal letter must:
- Be in writing
- State the address of the rented premises
- State the date the existing lease will end and when the new lease will start
- Give the length and type of agreement
- Details, including contact details, for you and your agent, if they have one
- Whether the rental price stays the same or will be increased
- Whether any other terms remain the same or are changed
- A deadline date for responding
Considering the complexity of the residential tenancies legislation, as you can imagine, I don’t recommend landlords manage their own properties or send notices directly to their tenants, but Wonder Legal Australia has a great and easily editable example of a simple lease renewal letter.
A notice or document can be given by handing it to the tenant in person, personally putting it in the tenant's letterbox or at the address they have specified for receiving notices (e.g. care of an agent) or by emailing it to the tenant, but I strongly suggest sending it by registered mail to show proof that you’ve sent it.
Of course, where there are two or more tenants or landlords, the notice or document may be given to either one - it does not need to be given to both.
Then it’s important that the landlord or their agent also keep a copy for their records.
Renewing the lease without a rental increase
Lease renewal without any increase in the going rent or changes to terms is pretty straightforward.
If a property manager is looking after the property on your behalf, you simply need to advise them that you wish to renew the lease terms, usually before the tenancy ends.
They will then notify the tenant, who can decide whether they wish to take up the renewal option or submit their 28 days notice to vacate the premises at the expiration of the lease.
Renewing the lease with a rental increase
If you intend to increase the rent but still want the current tenant to stay on, you must advise them in writing at least 60 days prior to the increase coming into effect, usually at the commencement of the new lease term.
Unless you include an additional clause in the tenancy agreement that states a rent review may occur sooner, you can only seek a rent increase at the end of the lease.
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In cases where the lease is less than six months or periodic, you cannot seek a rental increase any more frequently than every six months.
In some states, there is an official form that you must complete in order to provide the tenant with the required 60 days' notice of a rent increase, and tenants have the right to seek a rental assessment from the relevant governing authority, such as the Director of Consumer Affairs Victoria if they feel the increase is unfair or excessive.
They must do so in writing within 30 days of receiving the notice for a rent increase and it will then be up to the Tribunal as to whether or not the landlord has the right to put up the rent.
Clauses to include in a lease renewal agreement
Other clauses that you might need to consider including in a lease agreement, whether it be a renewal or the initial contract, are as follows;
- If the property happens to be your own home and you intend to move out and lease it for a short period of time, perhaps to travel or for some other reason, you need to ensure you include a clause that states “the property is your Principal Place of Residence”. When you intend to move back into your home the tenant is to be given appropriate notice (this may differ from State to State) to vacate.
- If the premises are considered unsuitable for children to occupy, an order must be obtained from the Tribunal prior to leasing the property to comply. A clause stating such would then be written into the lease agreement and you need to attach a copy of the Tribunal Order.
- If there is an open fireplace at the premises that is not to be used, a clause should be inserted in the lease agreement that states the “open fireplace is for ornamental purposes only”.
- If additional services are being provided by the landlord to the tenants, such as a garden or swimming pool maintenance, the terms of these should be stipulated in the lease agreement.
How to remove a bad tenant
So what if you have one of those tenants from hell and decide you want to take the opportunity at the expiration of the lease to make them vacate, in order to find someone who’s more likely to look after your asset?
Or perhaps you simply have plans for your premises that don’t involve tenants at all.
Well again, there are certain regulations you must follow in order to cover your backside!
If the tenant is on a fixed-term tenancy and their lease is coming to an end, you will be required to give them sufficient notice to vacate.
The period of this notice varies from state to state, but in Victoria, the notice must be in writing in line with the requirements of Consumer Affairs Victoria (CAV).
If the fixed-term tenancy is less than six months, you must give the tenant 60 days' written notice on the prescribed form from CAV.
If the agreement is six months plus, you must provide the tenant with 90 days' written notice to vacate.
Should you decide to give your investment property a little spruce up and need the tenants to move out in order for renovations to commence, or you decide to sell your property, you will need to notify the tenants, again in writing, within 60 days advance warning.
If you simply want an inadequate tenant off your premises for good, you might be pleased to know that you do have the right to issue a notice to vacate without having to provide a specific excuse.
In such cases, the written notice must have a provision for a 120-day vacating period and stipulate that the notice is being given for “no specific reason”.
What if a tenant refuses to leave?
We’ve all heard the horror stories on current affairs programs about landlords doing the right thing and giving tenants adequate notice to vacate, only to have them remain in the property and force a stalemate of sorts.
This is every landlord’s worst nightmare and can often leave investors feeling vulnerable and helpless.
Whilst tenants do have legal recourse to dispute a notice to vacate at Tribunal and request the right to remain on the premises, they cannot simply “squat” on your property.
There is no denying that this is a difficult situation to find yourself in, to say the least, but rest assured that there are steps you can take to resolve such a deadlock.
If the tenant will not cooperate with the parameters of an eviction notice, the application is made to the Tenancy Tribunal for possession of the property.
Once possession has been granted, the tenant and landlord/managing agent are issued with a warrant for possession, which the agent will organise to be executed by the police in the relevant jurisdiction.
The police then contact the agent to arrange a time to go to the property, see the tenants off the premises, change the locks and formally take possession.
I understand that this can pose a daunting prospect for landlords, particularly given the seemingly endless amount of bureaucratic red tape you need to cut through in order to regain what is rightfully yours.
But under no circumstances should you take matters into your own hands and confront belligerent tenants.
Going through the legal motions might seem frustrating, but you will see results eventually and most tenant evictions never reach such an impasse.
The important thing to understand is that you will face penalties should you decide to take the law into your own hands at any point and fail to do the right thing by your tenants according to the relevant legislation in your jurisdiction.
What if your property manager is not cooperating?
If your managing agent neglects to issue the correct notice to vacate, for instance, the tenant may take you to Tribunal to claim compensation.
In that case, you will have to issue a correction notice to vacate with the correct time frames in place, which of course will delay the vacating process.
If you instruct your property manager to give the required notice to vacate to your tenants and they fail to do so, you have the right to take the managing agent to Tribunal for neglecting to fulfill their obligations to you and they may be fined.
Of course, the one thing all of us landlords really want is a reliable rental income without any extended vacancy periods.
From this perspective, it is important when it comes to lease renewal agreements to feel that the law not only protects the tenant but you, the landlord, as well.
In Victoria, should a tenant decide that they wish to move on, they must issue the landlord or managing agent with a 28-day written notice of their intention to vacate.
If they are on a fixed-term agreement and wish to vacate prior to the lease expiration, they are in effect “breaking the agreement”.
In taking such action, the tenant will be liable to pay re-letting fees, advertising costs, and rent up until such time as the property is re-let or their lease officially expires, whichever occurs first.
Ultimately, the law pertaining to tenancy agreements is in place to make the process of renting a property, for both the tenants and landlords, as straightforward and painless as possible.
In most cases and in my own experience, I find that nine times out of ten, if you do the right thing by the tenant, they’ll do the right thing by you, and everybody wins.
NB: The above information is based on Victorian regulations. Landlords are advised to confirm the rights and responsibilities they have to the tenant within their own jurisdiction.
