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How long leases can solve rental woes

March 31, 2019

Catherine still has possessions in storage from the last time she moved. It didn’t seem worth finding spaces for them all when she knew she’d have to box them all up again in a few months, so now she’s paying for a storage unit as well as her rent. She’s already moved four times in the past five years, and her lease is up in six weeks. She’d love to buy some plants for her balcony, or choose her own paint scheme, but it doesn’t seem worth it when she’ll just have to move again shortly.

At Independent, we hear countless stories like Catherine’s.

Renters who want to put down roots

There are tenants who want nothing more than to settle down in one spot, find their favourite local cafe and introduce their children to the nearby schools. But instead, they’re asked to move by landlords who want to sell up, move in or renovate. Some landlords also only offer six-month leases, and because there’s so much competition for the longer leases, tenants like Catherine might find themselves with no choice but to accept six months.

Short lease, long term problems

For landlords, too, short lease terms can create problems. A high turnover of tenants means that the property is more likely to experience periods of vacancy, with all the associated costs of advertising and qualifying and approving new tenants each time.

Tenants moving their possessions in and out of the property also means more wear and tear – before you know it, you’re repainting again.

Canberra has continued to have the country’s tightest rental market throughout 2017, at a squeaky 0.8% vacancy rate. That’s made life harder for tenants, and with more and more families moving into Canberra something needed to change.

But there is hope for Catherine and the hundreds of other tenants looking for a long-term solution. This year Independent Property Management introduced the Long-Term Lease Scheme, a program created to provide landlords with the option of offering up to five-year leases and tenants, the option to sign them.

This can be a win-win for both tenants and landlords who are provided with both financial security and peace of mind. But in a world of legislation, contracts and rules how does something like this actually work?

The ins and outs of long term leases

“We surveyed both landlords and tenants about the idea, and the thing that came up on both sides was the desire to have a one year ‘trial period’ before committing themselves to a longer term.” Monika Minko, Senior Leader of Independent Property Management, explains.

After a lot of research Monika and the team created a scheme where:

• Long-term leases will be offered as a one-year lease in the first instance, with an option to renew for two, three or four years after that first year;
• The agreement includes an agreed-upon annual rent increase, either a percentage increase or a CPI increase; and
• If all goes well in the first year and parties agree, rental inspections can be reduced from two down to one per year. No more midnight grout-scrubbing sessions!

Long lease terms are new to Canberra so not yet fully supported by the current tenancy legislation, but nobody at Independent Property Management is that easily daunted.

“We came up with the necessary tribunal endorsements for clauses to support long leases if both parties agree”, explains Monika.

“So, for example, if the owner wanted to sell the property during the lease, the owner would pay for the tenant’s moving costs and an end-of-lease cleaner to mitigate the disruption”.

How does this scheme benefit people like Catherine?

Tenants can enjoy the security and peace of mind that comes with knowing that they can stay put for several years. As their obligations under the Residential Tenancies Act are already pretty clear, there won’t be any extra requirements as long as they pay rent and keep the place in good order.

Catherine, who’s finally signed a long-term lease, is pretty thrilled. “We’ve always been really hesitant to invest in plants for the balcony or artwork for the walls before, but knowing we’ve got twelve months ahead of us or even more makes me excited about investing in things that make the house a home. At our last apartment, with so much of our stuff in storage, it felt like a long-term hotel. Now there’s an emotional attachment and no stress”.

What makes the scheme attractive to landlords?

Landlords have the security of knowing that their tenant will stay for the long term, avoiding vacancy periods and end-of-lease costs, and by including rent increases in the lease they can project their cash flow into the future.

Extra conveniences are offered to the landlord so that their cash flow isn’t compromised by the longer term.

“We include an asset register as part of the service”, says Monika, “where we outline and recommend a maintenance plan and budget for ongoing upkeep”.

If the owner agrees, a small percentage of the weekly rent – between $5 and $15 per week – is kept back in a sinking fund, to be made available for large maintenance or renovation jobs at the end of the lease term. That way, landlords aren’t left having to find spare cash to replace carpets and dealing with a vacancy period to boot.

The Long-Term Lease Scheme was officially launched in December 2017 and so far, has attracted a lot of interest from tenants and landlords.

“This is a relatively new idea to Canberra, but we know landlords and tenants are looking for options. Tenants love the security and peace of mind that’s offered when they have a home for longer. The Landlords are pleased to know they have a reliable, responsible tenant who’s committed to staying in the property long term.”

And for people like Catherine? Well, she’s just looking forward to some stress-free years with no rental applications, moving boxes or storage sheds.