January 27, 2022

Longer rental agreement versus shorter rental agreement?

If you’re the owner of a rental property one of the big considerations at the commencement of any rental agreement is how long should I opt for?

With the most common rental agreements being six and 12 months, it’s a big decision, and one that should be weighed against a couple of factors…

So, let’s examine the pros and cons of longer versus shorter rental agreements and how you can decide between the two.

Standard rental agreements

In most regions of Australia, six-month or 12-month rental agreements are often the most popular, and each has pros and cons for both the rental owner and the rental occupier.

Six-month versus 12-month

Six-month rental agreements offer both the rental occupier and the rental owner flexibility.

In other words, if the situation changes – for example the rental occupier needs to move, or the rental owner wishes to sell the property – the short-term nature of the agreement is less likely to result in a broken rental agreement.

That said, it also results in less security of tenure for both parties.

For the rental owner, it means at the conclusion of the six-month period, they may need to seek out another occupier, which involves costs like re-advertising and re-letting.

For the rental occupier, it might create uncertainty that their rental agreement will not be renewed, or the price of the rent might rise.

So, as a rental owner, how do you assess which length of agreement is right for you?

Ongoing demand

If demand for properties in your area is high and is likely to continue to be so, a six-month agreement might be more suitable, allowing you to raise the rental price in line with the market.

This high demand also means there is likely to be a minimal amount of time that your property will sit vacant.

If demand fluctuates or is low, 12-months provides the certainty that you have a rental occupier in place.

Your financial situation

Owning a rental property is akin to running a business, with income and expenses. It’s important to note re-advertising a property for rent costs money, as does your property sitting vacant.

If you are seeking financial certainty, a 12-month rental agreement will likely suit better, offering you the security that you should receive a specific amount of rent weekly for an entire year.

Your personal circumstances

If there’s a chance you might sell your property or move into it, a six-month agreement is likely to be the best option.

This provides greater flexibility for you to make a move when you need to.

What if the renter asks for a six-month agreement?

If the rental occupier asks for a six-month agreement, the rental owner can agree or instead propose a 12-month agreement.

At this point it’s up to the owner to weigh the market demand for properties in the area, consider the calibre of the renter, and assess their own financial situation.

How we can help

Our experienced property managers pride themselves on establishing great relationships with both rental occupiers and owners.

We manage every property as if it were our own and you can learn more about our property management services here.

Alternatively, if you are looking to rent a property, you can view the properties we currently have available here.