Fixed Term Agreement vs. Periodic Agreement: Which is Better for Your Business?
When it comes to renting out a property, landlords have two options when creating a lease agreement: fixed-term or periodic. Both agreement types have their advantages and disadvantages, but choosing the one that suits your needs can be the difference between a successful and a problematic rental experience. In this article, we’ll go over the basics of each agreement type and help you make an informed decision.
Fixed-Term Agreement
A fixed-term agreement is a lease agreement that lasts for a set period of time, usually six months to a year. This type of agreement is great for both landlords and tenants as it offers stability and predictability. Landlords can be assured of a steady stream of income for the duration of the agreement, while tenants can plan their finances and make long-term decisions based on the length of the lease.
Advantages of a Fixed-Term Agreement
1. Predictable income: As mentioned earlier, landlords can count on a consistent income stream for the duration of the lease.
2. Lower risk of vacancies: With a fixed-term agreement, landlords can avoid the risk of having to find new tenants every month, which can be time-consuming and costly.
3. Rent increases: Landlords can increase the rent for the next lease term, which means they can adjust the rent to reflect market conditions.
Disadvantages of a Fixed-Term Agreement
1. Lack of flexibility: Tenants may be hesitant to commit to a long-term lease agreement, especially if they are uncertain about their future plans.
2. Early termination: If a tenant decides to terminate the agreement before the lease term is up, landlords may have trouble finding a new tenant to take their place.
Periodic Agreement
A periodic agreement, also known as a rolling contract, has no fixed end date and can be terminated by either party at any time by giving notice. This type of agreement is ideal for tenants who are uncertain about their future plans, as it offers more flexibility.
Advantages of a Periodic Agreement
1. Flexibility: Tenants have the freedom to terminate the agreement at any time, which can be helpful for those who are uncertain about their future plans.
2. Short notice periods: With a periodic agreement, landlords can give a shorter notice period to tenants before asking them to vacate the property.
Disadvantages of a Periodic Agreement
1. Unpredictable income: With a periodic agreement, landlords can never be sure how long a tenant will stay, which makes it difficult to plan for a steady income stream.
2. Constant tenant turnover: With tenants coming and going, landlords may have to spend more time and money finding new tenants.
Which Agreement Type is Best for Your Business?
When deciding between a fixed-term agreement and a periodic agreement, it’s important to consider your business goals and the needs of your tenants. If you’re looking for a stable income stream and are confident in your ability to find long-term tenants, a fixed-term agreement may be the best option for you. If, on the other hand, you’re looking for more flexibility and are willing to take on the risk of frequent tenant turnover, a periodic agreement may be more suitable.
In conclusion, both agreement types have their advantages and disadvantages, and it’s important to weigh them carefully before making a decision. Ultimately, the right agreement type for your business will depend on your specific circumstances and priorities. With careful consideration and planning, you can create a lease agreement that benefits both you and your tenants.
