EP. 1453 LEASES ARE FOR LOSERS times have changed

Remember when a 12-month lease meant an ironclad commitment from both sides? Those days are rapidly disappearing in Australia's rental market.

Property management veteran Cleo Whithear unpacks the dramatic shift happening with rental agreements nationwide. The traditional fixed-term lease – once considered essential for both landlords and tenants – is increasingly being viewed as unnecessary baggage in today's rental landscape. This transformation reflects a broader societal move away from rigid contracts, mirroring trends we've seen with phone plans and gym memberships.

What's driving this change? Recent legislation has strengthened tenant protections regardless of contract type, while creating a striking imbalance in termination powers. Tenants can now exit contracts with minimal penalties, while landlords face nearly insurmountable hurdles to reclaim properties during fixed periods. As Cleo explains, "We have only one or two cases where owners were permitted to ask tenants to move out early" – one involving a refugee returning from war-torn Afghanistan.

The traditional concerns that made fixed terms attractive to landlords have also evaporated. With Australia's tight rental market, properties lease quickly regardless of season, and new tenancies often command higher rents than continuing ones. This reality has many property owners questioning why they would limit their flexibility with fixed terms when the market heavily favours them anyway.

Despite this shift, the initial lease agreement remains crucial. This foundational document establishes the terms that will govern the entire tenancy relationship, with modern agreements covering everything from pet ownership to digital communication methods. Whether you're investing in property or searching for your next home, understanding this evolving landscape is essential for navigating Australia's rental market successfully.

Want more insights on managing your investment property or securing your ideal rental? Subscribe to our podcast for regular updates and expert advice from industry professionals who understand both sides of the rental equation.

Episode Transcript

Speaker 1 (00:01):
Real estate agents, property managers across the
country, tenants, landlords.
The landscape has changed withleases.
We're going to talk about itright now.
Stay tuned.
Cleo Ritchie, expert propertymanager of how many years Too

(00:37):
many oh.

Speaker 2 (00:42):
Of how many years Too many.

Speaker 1 (00:44):
Oh, cleo.
This has come up every year andthe crunch time is here for
leases, fixed-term leases.
Airbnb started the trend Don'tworry about a bond, don't worry
about length of term, just comeon in and start paying.
Don't worry about a bond, don'tworry about length of term,

(01:07):
just come on in and start paying.
And now we're starting to seesome trends across the real
estate industry with fixed-termleases Talk to us.

Speaker 2 (01:14):
Well, what brought this about is probably the new
legislation that's come in, aswell as, obviously, tenants and
the shortage of property.
So security for the tenant isvery important, whereas locking
a tenant in for a fixed periodis not as important to the

(01:37):
landlord.
If you have a tenant thatvacates, you most likely,
probably 80% of the time, willprobably garnish a bit more rent
.
If you put the property on themarket now, from what, uh you
would, you know, continuing onwith a long-term tenant, and
tenants usually that ask for afixed term are, you know,

(02:01):
families, people that areneeding that contract for
schooling and also sometimes forinsurances.
So if you have contentsinsurance and the big companies
do prefer that, you have lockedin contract nowadays the break
lease clause for a tenanttowards the end part of the

(02:23):
lease 75% if that's actuated.
They only have to pay aone-week break-lease fee to end
the contract, leaving the owner,you know, sometimes out of
probably about four weeks, fourto five weeks worth of rent.
So yeah, it is a littlecontentious point for tenants

(02:43):
and landlords.
On both sides we have alwayshad a bit of an ethos to leave a
tenant month to month in ouroffice as in they're still
protected by the original termsof the contract.
Your rights are still the same,you just are fixed, locked for
a term of 12 or six months andand it seems that there's

(03:09):
everything's going that way.

Speaker 1 (03:11):
You know in a way, but you know the the days I
think of the old-fashioned dayswas you make the commitment,
you're in, you're not gettingout of it.
You've made the commitment andit's mutual.
If I'm a landlord and I'mgiving you a commitment for 12
months and you're a tenant, youmake that commitment for 12

(03:35):
months.
You've both made thatcommitment, but over the years
it's changed.
It's like sure, you've made thecommitment, but you know, mr
Landlord, you can't get out, butMr Tenant, you can.
If so, it seems like you knowthe old-fashioned sort of
handshake and you know we'reboth going to commit to 12

(03:55):
months out the window.
So why are you going to do alease?

Speaker 2 (04:01):
Yeah, look, you can get divorced at any time.
Yeah.

Speaker 1 (04:05):
Yeah.

Speaker 2 (04:07):
The tenant can get out of the contract for a lot of
different reasons.
I had a landlord ask me alittle while ago well, how do I
get out of the contract?
And I go.
Well, very, very difficult,like it's, you have to prove
extreme financial hardship atncat to get a tenant.
In fact, we have only in thehistory of such a long time

(04:29):
being property managers have oneor two cases where the owners
were permitted for the tenantsto be asked to move out early,
and one of those reasons wasbecause the owner was returning
from Afghanistan and it was awar happening at the time and he
came through as a refugee andhe needed the property back.
That was one of the only timesI've heard of a tenant asked to

(04:54):
leave during a fixed term.
So it can happen, but it's likethe rainbow unicorn it's very
rare for an owner to be able toget possession back once a
tenant's locked in for a period.

Speaker 1 (05:06):
Okay, so I'm a landlord, You're a property
manager.
My tenant's lease was for sixmonths and I'll ring you up and
go.
I want another 12-month lease.

Speaker 2 (05:24):
What do you say?
I say, sure, we can definitelysign the tenant up for another
12 months.
It doesn't impact or affectrent increases.
You can still only do one peryear.
So having your tenant locked infor a 12-month period at a
certain fixed rent doesn'treally factor in.
But if circumstances change foryou, Mr Landlord, it's going to

(05:45):
be very difficult to make thosechanges.
For example, if you wereplanning on selling or having a
family member move in, havingthe flexibility of a
month-to-month contract willallow you to make those changes,
whereas a fixed term will not.
You are locked in for thatperiod with that tenant.

Speaker 1 (06:07):
But, cleo, I think what people shouldn't forget is
it's the whole emotion of I wantmy unit back or the tenant I
want to stay here.
None of that's fundamentallychanged.
Yeah, sure, you know, 12-monthlease, two-year lease, six-month
lease, whatever, but at the endof the day the drivers haven't

(06:30):
changed.
So the tenure, the actual truetenure of the tenant in that
property is similar.
Do you know what I mean?
So this they're not stayinglonger or shorter because
they're, not because of thesefixed terms, but certainly that
old-fashioned way where we usedto say no, no, no, no, no, I
don't want it, not on a lease,they're gone because when that

(06:53):
lease expires, all of the termscontinue, just the fixed term
doesn't continue.
And people seem getting prettycomfy with that these days, even
with phone contracts look atTelstra you know when you used
to always want to, you know haveto be on a phone contract and
those days like no, no, nocontract, that's fine.

Speaker 2 (07:13):
Same with the gym.
You know the gym membershipsnow.
You know Fitness.
First used to lock you in for24 months.
That contract was ironclad.
I never went, I went once ortwice a month.
And they still charge me thatclockwork.
Look, the main reasoning for afixed term in the past was

(07:34):
controlling the tenant's vacateor relet, and the fear was I
don't want my tenant moving outduring winter.
Winter is the worst time torelet my property.
That's gone now.
As you said, that's really notrelevant in our climate.
Whether it's winter, christmas,spring, autumn, the market's
hot.
If your tenant moves out now inAugust, september, it doesn't

(07:57):
really matter.
You know we still will rentthat property out quickly.
Your vacancy rate's going to below and you're going to get
more rent anyway.
So what's the reasoning forsigning them up?
You know.
So, yes, the landlord's becomemore secure and more relaxed in
not needing that fixed term, Ifeel.

(08:18):
And the tenants also have thattrust now with the new
legislation that they can't justbe asked to move without a
valid reason.
So I think it's a win-win.
It's less paperwork for us.

Speaker 1 (08:32):
Yeah, but that's right because it's not a dollar
productive.
You're not charging a lettingfee when that new lease gets put
in place.
Now, one thing I also.
Our headings are leases are forlosers.
Let's clear this up.
First of all, the initial leasegot to do.
It got to get those terms right.
It's the subsequent relets, oryou know, redoing a lease with

(08:58):
the same tenant.
That's not being done.
And then there's the word whichI think leases for losers is
probably more relevant with.
We're not allowed to call themleases.

Speaker 2 (09:10):
It's a contract.

Speaker 1 (09:15):
Or agreement lease agreement Lease the residential
tenancies agreement is the NewSouth Wales term Lease?
It is not, although incommercial I believe it is, but
residential it is not.
But you know how many peoplestill don around the word lease

(09:36):
in resi all the time.

Speaker 2 (09:39):
And look, they've evolved over time.
Remember you, could you know?
If you were private owner, youcould go to the post office and
they'd give you this pink leaseagreement and you'd see some of
those old handwritten leasecontracts and you're like what?
There's no fixed term, what doyou mean?
The rent's not put on here,like they've been very, very lax

(10:00):
and they have come a long way.
Our lease contracts now arevery, very detailed.
You've got so many new clausesthat weren't in the old leases
or lease agreements the you knowpet clauses, for example, being
able to rescind digital notices, which is huge, things like

(10:22):
that.
You know you've got all thestatutory requirements now the
landlord information statement,the tenant information statement
, all these things that werenever really included.
So that first initial leaseagreement is very important that
you as the tenant go throughthat thoroughly and as an owner,

(10:42):
if you have particular thingsthat you want in there, that you
advise your agent and thenthose things will carry on and
carry on and carry on year afteryear.
It doesn't matter if it'ssigned or not signed after the
12-month or six-month period.

Speaker 1 (11:00):
Those initial terms will still carry on, claire
Whittier, thank you very much.

Speaker 2 (11:05):
I hope we helped some tenants and landlords out there
today.
You've gone urban today, mark.
Definitely a great landscape inthe back very chill, thank you.

Speaker 1 (11:14):
I bought this cap and I didn't realise it said douche
.
I never got that brand.
Very, very chill, thank you.
I bought this cap and I didn'trealize it said douche.
I was like that's so cool.
It's like, oh, it says I'm adouche it's douche all right,
have a great day.
Bye thanks.