What happens when my fixed-term becomes a periodic tenancy?

What happens when my fixed-term becomes a periodic tenancy?

November last year saw the Government announcing the proposed changes to the RTA. One of the key changes is encouraging a shift from fixed-term tenancies to periodic tenancy agreements. These changes are aimed at making things fairer for the increasing number of Kiwis who rent.

The RTA amendment bill passed its first reading on the 20th of February 2020, so changes are likely coming. Rent prices, along with house prices are at record highs around the country. The rate of home-ownership is falling. The Government wants to take action and help out the one in three Kiwis who rent.

‘shift the balance, and make renting fair’.

Green Party NZ

But what do those who are providing the houses think of these policy changes? And how will they react?

A December survey by the New Zealand Property Investors Federation named “changes to fixed-term tenancies” as the number one concern of property managers and Landlords. Of the 2,603 participants included in the survey, 86.2% said they will change how they manage their rentals if these law changes go through. Unfortunately, those changes don’t sound good for renters.

The changing laws around tenancy agreements

The change we’re covering in this article is related to clause 39 of the RTA and it will require that fixed-term tenancy agreements must become periodic tenancy agreements upon expiry unless:

  • both parties agree otherwise,
  • the tenant is not meeting their obligations, or
  • specified grounds for the tenancy to end apply

Currently, periodic rental agreements can be ended by landlords within 90 days and without them giving any reason. This is called a no-clause termination. A landlord can give a shorter 42 days notice if they want to sell, or move in family members. More information on this can be found on the Tenancy Services website here.

What will these changes mean for landlords and tenants? Before we explain their effect, it’s helpful to understand the difference between these two types of tenancies.

What is the difference between a periodic and a fixed-term tenancy?

A fixed-term tenancy has a specified end date, that both the landlord and tenant have agreed on. If this fixed term ends, and neither party gives notice, the tenancy automatically becomes periodic.

A periodic tenancy has no set end date. Similarly, it also continues until either party gives written notice.

Article: Can I break a fixed-term tenancy?

Will there be any point in using fixed-term tenancies if this law comes to pass?

According to the New Zealand Property Investors Federation, fixed-term tenancies won’t really exist anymore.

They have stated that some members will leave properties empty rather than risk taking on tenants they’re no 100% on. The tenancy agreement can still be ended if the landlord is selling or has family moving in. However, instead of the landlord giving 42 days, they must now give 90 days’ notice. Landlords will be able to give other reasons for eviction but they will need to be real such as:

  • demolishing the property
  • changing the use of the premises
  • receiving at least three notices for anti-social behaviour or
  • being five days late with the rent on three occasions.

How will a periodic tenancy help tenants?

A periodic tenancy is going to give tenants a lot more flexibility. This is really useful if a tenant is anticipating relocating, or buying their own home in the near future. As long as proper notice is given, tenants can move from rental to rental as it suits.

With the proposed changes to the RTA, once a fixed-term tenancy ends it will become periodic. A tenant is no longer required to re-sign for a specified period of time. Once outside of the fixed-term, the tenant can give 21 days’ notice when they want to end their tenancy.

For some tenants, a fixed-term tenancy can be great. You know that you’ve got somewhere to stay for the amount of time that you agree to. In addition, knowing exactly when to begin looking for a rental takes a lot of stress out of the process. But that’s only if your fixed-term tenancy isn’t ending in February. If it is, you’re going to hit the peak of the rental market and finding a home during this time can be hard.

A fixed-term tenancy doesn’t allow a lot of flexibility if your circumstances change. Unless your landlord agrees to end the tenancy, you can’t actually give notice to end before the tenancy is due to finish.

Things like a new job opportunity, or falling out with flatmates aren’t good enough reasons to break your tenancy. To break a fixed-term tenancy, you must prove that a sudden change in your circumstances is going to cause you hardship.

What will these changes mean for Landlords?

Many landlords prefer a fixed-term tenancy. It gives them the ability to plan in advance for when they need to find new tenants.

Finding the right tenant can be quite a lengthy process. Why? It depends on several factors:

  • The local rental market and
  • The time of year
  • Time spent renovating or repairing the property once tenants have moved on
  • Time taken to list, arrange viewings, and sign new tenants

21 days’ notice might not be enough time to achieve all this without having a vacant property and losing out on income. In saying that, many landlords surveyed said that they would rather leave a property empty than rush the process; they don’t want to risk getting ‘bad’ tenants. As a result, they will take time to do thorough reference and background checks before agreeing to a tenancy.

For a landlord, having a fixed-term tenancy means that if you find yourself with incredibly difficult tenants, you’re going to have to stick with them until the tenancy term finishes. However, only until then and not until the tenant decides to give notice themselves – which could be the case if the proposed changes go through.

A periodic tenancy might not offer the same security of income as a fixed-term, but the flexibility can definitely be a bonus. What if you find yourself or a family member needing to occupy your rental property? As long as you give the minimum notice (currently 42 days), then that’s an option for you.

What do Landlords think of the changes?

Landlords response to these changes has been mixed, with a large number, 26% saying they will sell their properties. While this is great news for first-home buyers, it may not be so good for people who rent. On average, when a rental becomes owner-occupied one less room in the property is being lived in. With this in mind, a decrease in rentals and an increase in owner-occupied homes could actually negatively affect renters looking for a room.

Case study: A three bedroom flat is shared by four friends, one couple and two singles. The property is sold to a couple buying their first home. There are now two people living at a property that used to house four.

Other feedback from landlords that would have a large impact on tenants is that some will increase their rent prices. A staggering 70% said that if the changes go through, they will be increasing rent to cover the extra risks to their business. Perhaps more worryingly, 30% of those surveyed said they would exercise their right to use the 90-day no clause eviction before the law changes. That could see upwards of 32,000 tenants given notice to leave their homes.

Fixed-term tenancies can provide more stability than periodic, but their rigidity can mean that you might find it difficult to work around them. Periodic tenancies are perfect if you enjoy flexibility, and aren’t too worried about finding a new rental property or tenant unexpectedly.

What’s going to happen if these laws come into effect? Will they really make things fairer for people renting? From 2020 onwards there will be some big changes to the rental industry, in both the short and long term. How these changes impact both renters and landlords will only become apparent once the changes become law.

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