A tenancy application came across my desk this week, with the prospective new resident seeking a long-term home and a lease of “2 years minimum”. New to Cairns (and Australia), he was surprised to find that a typical lease term would only last 12 months – after all, who would want to move that quickly? Crazy, right?
For better or worse, in Australia we have long had a focus on flexibility in our letting of residential property, even in cases where tenants stay in place for a decade or more. So why don’t we see 5 year house rentals, and why are they more common elsewhere?
From a legislative perspective, there is little incentive for a QLD landlord to commit to a long lease as while they are locked in for the duration, tenants are able to terminate with little to no penalty at any time. Where 12 months ago a tenant would need to cover the costs of reletting a property until a new comparable lease was signed, the maximum cost to a tenant leaving early is now just 4 weeks’ rent, and often less. Strike one for locking in long-term (at least for an owner).
While longer leases can provide for rental increases in a term (no more than once per 12 months), increases have to be nominated from the start of the lease, with no room to move outside of those terms. Few landlords in February 2020 could have anticipated what the market would look like 5 years later, and equally, some tenants might hesitate to lock in prices that far ahead. Interestingly enough though, a tenant that had locked in then might have made some significant savings overall.
Looking more broadly across Australia, shorter lease terms also allow for the fact that property really is treated as an asset class as much as housing. Over the past half decade in particular, house prices have run, and the best prices are typically achieved where sold to owner occupiers. A shorter lease allows greater flexibility in the terms of a sale (and access during the process) as well as reduced stamp duty in some cases for an incoming buyer.
For a tenant, shorter leases provide greater flexibility and mobility (great for some, maybe less so for others), allowing to upgrade or downsize (where stock permits) without the expenses of stamp duty, sale and more. Where work from home can be from anywhere, it also allows for the new breed of digital nomad to sea change without the headaches.