Lease Renewal NSW – An Easy Explanation
Lease renewal in Sydney is a hot topic thanks to recent changes to Residential Tenancy Laws in NSW. Effective from 23rd March 2020, the NSW Government says these amendments are designed to “improve tenants’ renting experience while ensuring that landlords can effectively manage their properties”. But change always brings a level of uncertainty. Many landlords are now wondering how the new regulations will affect their investment properties and, in particular, what impact this will have on lease renewals.
Lease Renewal NSW Explained
Lease renewal generally occurs near the end of a fixed-term tenancy agreement. Before the end of the lease, a landlord may decide to:
- End the lease: The tenant vacates the property.
- Renew the lease: The tenant signs a new contract agreeing to lease the property for a fixed period of time.
- Have a periodic agreement: The tenant continues living at the property and paying rent, but on a month-to-month basis which can be ended by either party providing the necessary amount of notice.
Landlords have typically favoured a lease renewal over a periodic agreement because of the stability that it provides.
What is Involved in the Lease Renewal Process?
If you want to offer your tenant a renewed lease, then your first step should be to talk to your property manager. They can conduct a rental assessment to see whether the current rent is still in line with the market average or whether a rent increase can reasonably be implemented. Your property manager will then send a Notice for Lease Renewal to the tenant, which will outline the terms of the new agreement (including the length of the new lease and any proposed changes in rent). This lease renewal letter should be sent out prior to the end of the existing lease, as this allows plenty of time for the paperwork to be completed.
How Do Recent Changes’ Affect Lease Renewals in Sydney?
When a tenant breaks a fixed-term lease, they are required to pay a break lease fee. Under the new regulations, these fees are fixed and dependent on how much of the current lease is remaining:
- If less than 25% of the lease has elapsed, then the fee is 4 weeks rent
- If less than 50% of the lease has elapsed (but more than 25%), then the fee is 3 weeks rent
- If less than 75% of the lease has elapsed (but more than 50%), then the fee is 2 weeks rent
- If more than 75% of the lease has elapsed, then the fee is 4 weeks rent
This means that there is a strong deterrent to breaking the lease in the initial stages of a tenancy, but that this will diminish with times.
What Are the Benefits of Lease Renewal?
You may now be thinking: “What are the benefits of lease renewal since the tenant can break the lease anyway?” In an effort to avoid a lease renewal fee, some investment property owners may think that a periodic agreement is the preferred choice. But renewing a lease comes with a range of benefits that far outweigh the minimal costs associated with a lease renewal. These include:
- Keeping a good tenant: If you’ve found a reliable tenant who is caring for your investment property and paying the rent on time, then it’s well worth signing a lease renewal. A tenant left languishing on a periodic tenancy may feel that their situation is unstable and could start looking for a new rental property nearby that offers more stability.
- Minimising costs: Every time a tenant moves out of your property you will face costs associated with advertising the property and potential lost rent. Tenants on fixed-term leases are less likely to suddenly move out because of a concern about how this may impact their reputation as a reliable tenant.
Handling a lease renewal is just one of the many ways that a reliable property manager can make life easier for a rental property owner. If you’re looking for a property manager who has industry experience and delivers high-class service, then contact Thank You Real Estate for a free rental property appraisal.