Periodic vs. Fixed-Term Lease: What's the Difference?

Navigating the New Zealand rental landscape requires understanding the differences between fixed and periodic tenancies. Both arrangements present distinct advantages and considerations for landlords and tenants alike. As Auckland's premier provider of residential property management services, we'll cover the nuances of periodic vs. fixed-term leases to help you decide what's best for you.

Fixed Tenancy: Stability and Defined Duration

When tenants sign a fixed-term tenancy agreement, they agree to occupy the property for a specific period, such as six months or one year. The agreement clearly states the start and end dates of the lease. During this time, the tenant has the right to live in the property and must comply with the terms of the agreement.

In most cases, both the landlord and the tenant are dedicated to the lease term, which offers stability and assurance for both parties. After the fixed term expires, the tenancy will automatically become periodic unless the landlord or tenant provides the appropriate notice, reaches an agreement, or the tenant renews their lease if applicable.

Key Aspects of Fixed Tenancy

Duration and Stability

A fixed tenancy is a common arrangement that lasts for six months to a year. It provides tenants with stability during the specified period. This setup gives tenants a sense of security, as they know they have a guaranteed place to live for a defined period without worrying about sudden changes or unexpected terminations.

Rent Predictability

A fixed tenancy can keep the rent constant throughout the agreed-upon duration. This stability helps tenants understand their housing costs, enabling better financial planning and budgeting. The assurance that the rent won't fluctuate during this period alleviates uncertainties that can often arise in a dynamic rental market.

Landlord Benefits

The use of a fixed-term lease agreement is beneficial for both tenants and landlords. It provides a predetermined timeline that allows landlords to plan and manage their properties more efficiently. The clarity of a fixed-term lease agreement helps create a more structured and organised approach to property management, ensuring that necessary tasks are carried out efficiently within the designated timeframe.

Periodic Tenancy: Flexibility and Ongoing Arrangement

A periodic tenancy, also called a month-to-month tenancy or rolling tenancy, is a rental agreement with no fixed end date. Instead, it continues on a rolling basis with no specific termination date.

The tenancy agreement remains in effect until the tenant or the landlord provides appropriate notice to terminate it. With periodic tenancies, there is more flexibility as either party can end the tenancy by giving the required notice period of 28 days.

Key Aspects of Periodic Tenancy

Flexibility in Termination

Periodic tenancy is a type of lease that offers flexibility to both tenants and landlords. It allows tenants to terminate the lease with shorter notice periods than fixed tenancy arrangements. This feature gives them the freedom to adapt to personal circumstances, such as relocating for work or finding alternative housing options, without being bound by a long-term commitment. This type of tenancy benefits both parties as it caters to their ever-changing needs.

Rent Dynamics

Periodic tenancy allows landlords to adjust rents periodically. They can modify rental rates with proper notice to align with market fluctuations or accommodate property maintenance costs. This flexibility ensures a fair and reasonable adjustment of rent, keeping it in line with the prevailing market conditions while maintaining a balanced approach that benefits both parties.

Continual Renewal

The lease perpetually renews itself unless either party provides the requisite notice stipulated by law. Tenants can choose to remain indefinitely without the constraints of a fixed term, allowing for an ongoing, adaptable living arrangement that suits their evolving needs.

What’s Best for You?

Prior to the new tenancy laws implemented on 11 February 2021, we recommended fixed-term tenancies to landlords as they provided them with a predictable income. Moreover, if a landlord was dissatisfied with the current tenancy, they could give notice before the fixed term ended or renew it for another set term.

However, the recent legislation resulted in a significant shift of authority towards existing tenants. This change means:

·        Termination Restriction: You cannot provide notice at the conclusion of a fixed-term lease to conclude the tenancy.

·        Tenant's Choice: The tenant must opt to renew for a new term, or they retain the right to continue periodically, allowing them to issue a 28-day notice at any point to terminate the tenancy.

·        Limitation on Termination Methods: The three-strikes rule cannot be utilised to terminate a fixed-term tenancy. Instances of arrears and anti-social behaviour can only be applied to a periodic tenancy.

·        Transfer of Tenancy: You can assign your fixed-term tenancy to other suitable parties. In such cases, the property owner is obliged to approve the request unless it's deemed unsuitable upon assessment.

As a result, our current recommendation leans towards a periodic tenancy, which allows for:

• Utilising Notice Periods: A 90-day notice can be used for selling or upgrading the property or issuing a 63-day notice for an owner or family member's intent to move back in. These actions only apply when the fixed term approaches its conclusion, not during the fixed term itself.
• Three-Strike Rule: The ability to employ the three-strikes rule within 90 days to evict tenants due to anti-social behaviour or arrears.
• Arrears Termination: Retaining the option to pursue termination of the tenancy when the tenant falls 21 days or more into arrears. While ending a fixed-term lease in this scenario is uncommon, filing for eviction remains possible.
• Ending Tenancy Flexibility: If one party wishes to leave a periodic tenancy, there's the choice to terminate the entire tenancy. This decision hinges on the preferences of the involved tenants, allowing for the possibility of continuation or cessation based on their agreement.

When choosing between a fixed-term tenancy and a periodic tenancy, consider the level of flexibility you require. While a fixed-term tenancy provides stability, a periodic tenancy offers more flexibility. It's important to take into account your individual circumstances, future plans, and personal preferences before making a decision.

Wrap Your Head Around Leasing Options with Charlton

Understanding the differences between fixed and periodic tenancy in New Zealand empowers both landlords and tenants to make informed decisions. Whether opting for stability or flexibility, each arrangement offers unique advantages, catering to diverse needs in the realm of property leasing. 

For help setting up your tenancy agreement or a free, no-obligation rental appraisal in Auckland give the team at Charlton a ring.