The dos and don’ts of lease renewal for residential tenancies

When it comes to residential property management, there are definitive rules 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 termination of tenancies and 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.

Understand 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 6 or 12 months, or periodic agreements which usually “roll-over” on a monthly basis.

Essentially if you, the owner wish to officially lease renewal or alternatively end the tenancy for any reason, you need to put your intentions in writing to the tenant, regardless of the type of agreement both parties have entered into.

Landlords also need to be aware of the required timeframes for notice should they wish to alter any conditions of the lease.

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.

Renewing the Lease without a rental increase

Lease Renewal without any increase in the going rent or changes to terms are 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 affect, 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.

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 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 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 garden or swimming pool maintenance, the terms of these should be stipulated in the lease agreement.

Removing 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 “kick them to the curb”, 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 6 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, with 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 provision for 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 in the premises, they cannot simply “squat” in 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,application is made to the Tenancy Tribunal for possession of the property.

Once Possession has been granted, the tenant and landlord/managing agent is 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 you or your managing agent neglect 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 correct notice to vacate with correct time frames in place, which of course will delay the vacate 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.

Originally published at https://propertyupdate.com.au on January 2, 2013.