The pros and cons of longer rental leases

Tom Quaid. Picture: Brendan Radke

A tenancy application came across my desk this week, with the prospective new resident seeking a long-term home and a lease of “two years minimum”.

New to Cairns (and Australia), he was surprised to find that a typical lease term would span 12 months.

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 five year house rentals, and why are they more common elsewhere?

From a legislative perspective, there is little incentive for a Queensland landlord to commit to a multi-year 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 re-letting a property until a new comparable lease was signed, the maximum cost to a tenant leaving early is now just four weeks’ rent, and often less.

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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 five 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 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.

Over the past half decade in particular, house prices have run, and the best prices are typically achieved when sold to owner occupiers.

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.

* Tom Quaid is the REIQ chair for Cairns

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