Renting out property
January 28, 2020

Six ways Victorian landlords can prepare for five-year lease agreements

The Victorian Government’s recent announcement that landlords will soon be able to offer five-year leases has certainly sparked colourful debate, but so far there hasn’t been a lot of talk about the practical realities of these agreements.

Right now the laws in Victoria restrict rental agreements to no more than five years. But under new rules announced by Premier Daniel Andrews, that cap will disappear. Technically, that means you could even sign leases up to 10 years.

A website is even being set up for renters to connect with landlords offering long-term tenancies. (Whether such a move is necessary or landlords can use existing services is a something that remains to be seen.)

Are we preparing to enter a time in which politicians come around to the idea that some Australians may not ever achieve the goal of buying their own home, and instead may rent well into adulthood?

Perhaps! This trend is certainly the norm in other nations. In the UK, for instance, tenants can request leases of up to seven years, and in Germany leases are often set for an indefinite period of time.

We’re not there yet. But for Australian investors, offering a longer-term lease could be an attractive strategy for some, especially if you’ve just acquired an investment property as a first move into the market. It’s a question of cashflow: locking in that tenancy means you have your payments covered for a while.

But five years is a long time. Social, political and economic changes can be swift and dramatic. How can you make sure your agreement is foolproof when it may last for more than half a decade?

If you’re considering the idea of a five-year lease, then you should keep these things in mind:

1. Cosmetic changes

Tenants want to make a house their home even if they’re staying there for 12 months. But five years? Not being able to paint the walls or hang up some pictures makes people antsy.

You’ll have to consider some flexibility as to whether tenants can make cosmetic changes – and exactly what those changes might be. For instance, you might want to suggest that tenants could pay an amount towards having the property painted once they leave.

2. Break lease rules

Breaking a lease is different when you’re talking about a period of five years, versus 12 months. For instance, there could be a maximum amount of break lease fees chargeable to a tenant, while a landlord should be able to break a lease with six months’ notice – or some other suitable amount of time.

There could always be the possibility that if the landlord breaks the lease, they contribute some money to the tenants’ moving costs. Naturally, this would depend on how much time is left on the lease.

3. Flexibility over rent increases – or decreases

If you’re talking about a longer lease, you’ll need to include provisions for rent increases or decreases as the economy and rental market fluctuates. For instance, you may only be able to increase rents during predetermined times – which protects both the landlord and the tenant - or have some connection to CPI.

4. Pets

Just as with cosmetic changes, tenants should be allowed to have pets in a longer lease. But there could always be a provision that tenants should pay for some clean-up costs – for instance, spraying the property for fleas or an extra pet bond.

5. Advertising

Advertising for a five-year lease might seem straightforward, but you’ll need to be crystal clear about prices and expectations. For instance, you may want to advertise very clearly a higher amount of rent for a shorter lease, and a cheaper rent for a longer lease.

Making sure those figures are stated clearly will be crucial to attracting a tenant at the right price and maintaining transparency and openness with your tenant, and establishing a good relationship.

6. Scrutiny of applications

You may want to think more carefully about the types of people you’re looking for to rent from you, and whether or not they may be likely to request a break of agreement later on.

Remember, if you’re renting to new parents – children turn into toddlers. That doesn’t mean you should have second thoughts, it just means you need to carefully think through what the possibilities of that situation could mean for you and your property.

And remember – just because you have a long-term lease doesn’t mean you can’t end the lease if there are problems. It won’t matter if you’re in a two-year lease or a five-year lease, if your tenant has not paid rent or breached your agreement, you still have the option to evict.

You won’t be stuck. But for your own peace of mind, these considerations are something you ought to think about before embarking on a long-term lease.