What is a fixed-term tenancy?

A fixed-term tenancy is a rental agreement set for a specific length of time, typically 12 months. This type of arrangement is rigid, meaning neither the tenant nor the property owner can end the tenancy before the fixed term expires.

From 11 February 2021, all fixed-term tenancy agreements signed after this date automatically convert to periodic tenancies when the term ends, unless both parties agree in writing (at least 28 days before the end of the fixed term) to extend or terminate the tenancy, as per the Residential Tenancies Amendment (RTA) Act 2020.

Benefits of a fixed-term tenancy

Security for both parties
Fixed-term tenancies offer stability. Tenants have the assurance of a home for a defined period, and property owners know they will receive consistent rent throughout the term without the need to find new tenants, even during less ideal times, like the holiday season.

Additionally, for property owners planning to sell or complete renovations, having a fixed-term arrangement provides a clear timeline to work with.

Reduced vacancy
A fixed-term tenancy also reduces turnover, meaning the property is less likely to be vacant frequently, saving the owner time and effort spent on marketing and finding new tenants.

Costs of breaking the agreement
If a tenant chooses to end the tenancy early, they are responsible for the costs of finding a replacement tenant and paying rent until the original fixed-term end date.

Key considerations

A fixed-term tenancy can only be ended early if both parties agree, so it's essential to ensure both the tenant and property owner are comfortable with the agreement's terms before signing. Important points to review include:

• The suitability of the property for the tenant
• The condition of the property
• Whether the length of the fixed term aligns with both parties’ plans
• The end date of the fixed term
• Any future plans the property owner has, such as selling the property

Renewing a fixed-term tenancy

When the fixed term ends, it will typically transition into a periodic tenancy. This change, introduced under the Residential Tenancies Amendment Act 2020, took effect from 11 February 2021.

However, the tenancy can also end if either the tenant or the property owner gives the required notice in line with the Residential Tenancies Act. Alternatively, the tenancy can be renewed or extended if both parties agree.

Tip: Both parties should mark their calendars for at least 16 weeks before the end of the fixed term to review the agreement and make decisions about moving forward. This allows enough time to give notice if needed, especially for owners who may want to move back in, requiring 63 days' notice or 90 day notice to put property on the market.

What is a periodic tenancy?

Unlike a fixed-term tenancy, a periodic tenancy does not have a set end date. It continues until either the tenant or property owner provides notice, following the guidelines of the Residential Tenancies Act.

Benefits of a periodic tenancy

Flexibility
Periodic tenancies are valued for their flexibility. Tenants can give notice if their circumstances change or the property no longer suits them, and property owners can give notice under specific circumstances, such as:

• Selling the property and wanting it vacant
• A family member moving in
• Using the property for employee accommodation (this must be specified in the agreement)
• Undertaking renovations that require the property to be vacant

Less paperwork
With periodic tenancies, there is no need to renew the agreement annually, saving both parties time.

Key considerations

While flexibility is a major advantage, it can also be a drawback if notice is given unexpectedly. Property owners should consider:

• Potential vacancies and higher turnover, leading to more marketing efforts and tenant searches
• The risk of tenants giving notice during periods when finding new tenants is challenging, like the holiday season
• Restrictions on when property owners can give notice, as outlined in the Residential Tenancies Act
• Owners requesting a periodic tenancy from the beginning is a likely deterant to those looking for stability.
• Tenants requesting a periodic tenancy from the beginning is a likely deterant to owners who are renting the property, as a fixed term gives a commitment if chosen

Ending a periodic tenancy

Tenants
Tenants can end a periodic tenancy at any time by giving at least 28 days' notice.

Property owners
Property owners have different rules. From 11 February 2021, owners can only give notice for reasons outlined in the Residential Tenancies Act. In some cases, termination must be approved by the Tenancy Tribunal. For example:

• If a tenant has committed three antisocial acts within 90 days, with each act detailed in a notice
• If a tenant has paid rent five or more working days late on three separate occasions within 90 days

Other valid reasons for ending a periodic tenancy include:

• A family member needing to move in (63 days’ notice)
• Employees needing the property for accommodation
• Sale of the property
• Major renovations or demolition planned for the property

Which type of tenancy is best?

There’s no universal answer—it depends on future plans, the location, and the property itself. Consider these questions:

• Are you planning to sell soon?
• Do you have significant maintenance work that requires the property to be vacant?
• Will you be away during a busy rental period like summer?
• Is it easy to find tenants if given notice?
• Do you have time to market the property and hold viewings?

If you answered "no" to most of these, a fixed-term tenancy may be better. At Propertyscouts Dunedin, we often recommend starting with fixed-term agreements for the stability they offer both parties, but periodic tenancies can be useful if the rental market is strong or a sale is imminent.

Tip: When discussing tenancy terms, it’s a good idea to ask prospective tenants about their plans for the next 12 months and share any firm plans you have for the property.

How can the Team at Propertyscouts Dunedin help?

Managing tenancy agreements can be complex. Property managers have expert knowledge of current legislation and can guide you through key decisions, ensuring your property is well managed and you attract quality tenants.

If you have any questions about tenancy agreements or would like professional support, contact your local Propertyscouts Dunedin office.