The Pros And Cons Of Fixed-Term Tenancies Vs Periodic Tenancies

When you are letting your property you can currently offer a fixed-term tenancy or a periodic tenancy. There are pros and cons to each so deciding which best suits you is vital.

You need to bear in mind however that under proposed changes in the Renters (Reform) Bill, fixed-term assured tenancies and assured shorthold tenancies will be abolished and instead all assured tenancies will be periodic.

A Fixed-Term Tenancy Offers Security…

In the case of a fixed-term tenancy, there is a fixed start and end date usually between six and 12 months in length. This provides a clear timeline to both parties, guaranteed rental income and plenty of time to prepare for new tenants.

…But It’s Harder To Change Things

However, once a fixed-term tenancy is offered it’s not really possible to change terms and conditions part way through. You and your tenant will need to be crystal clear in your agreement about each other’s rights and responsibilities to avoid disputes.

If you want to raise rents during a fixed-term tenancy it can only be done through a rent review clause or by agreement with the tenant. If the rent review clause isn’t in your agreement and your tenant hasn’t approved a rent rise, then you will only be able to put up your prices at the end of the fixed term.

It will also be harder to evict your tenant in a fixed-term contract. If they breach their contract you can use a Section 8 notice – a fault-based eviction. If you wanted to include the option of a no-fault eviction during the fixed-term – using Section 21 – then you will need to add a break clause to the agreement but this is trickier and since it effectively allows both parties to end a tenancy early, it isn’t added often.

At the end of the fixed-term you can end the tenancy, draw up a new fixed-term contract or, if the fixed term was an assured shorthold tenancy, allow it to roll into a periodic tenancy which it does unless you do one of the first two options.

A Periodic Tenancy Provides More Flexibility…

With a periodic tenancy the rental period is indefinite, renewing periodically on a weekly or monthly basis – depending on when rent is paid – until the tenant or landlord ends the tenancy. If a fixed-term assured shorthold tenancy expires and it hasn’t been defined as to what the new tenancy type will be, then it becomes a statutory periodic tenancy by default.

A contractual periodic tenancy meanwhile comes into effect if the initial fixed-term tenancy contract has specified that periodic tenancy will follow after the end of the fixed-term.

The lack of defined dates means greater flexibility since you can increase rent or change the contract provided you give the required notice. Both Section 21 and Section 8 can be used to evict tenants with the required notice period.

…But Less Power To Bargain And Greater Uncertainty

The cons, however, include reduced bargaining power when negotiating with your tenants and possible fluctuations in rental income since tenants can leave at any time. That also means greater uncertainty over when you will need to find new tenants.

The Renters (Reform) Bill would mean that all assured tenancies are periodic, providing more security for tenants but a little less certainty for landlords.

We Can Help

At Progressive Lets we are experts in the rental market in the Peterborough area and help landlords find and manage properties within a 50-mile radius. We manage HMOs all over the Cambridgeshire, Northamptonshire and Lincolnshire areas and also offer HMO management services, closely managing rental accounts and maintenance issues at competitive rates. Get in touch to find out more.