The Residential Tenancy Lease Renewal Process

Investors, Property Management, Tenants,  Property Managers

Many real estate offices have set policies, systems and procedures in place when commencing the process for a lease renewal.

A lease renewal requires input from all parties – the lessor, the managing agent and the tenant. Instructions and commitments from all parties must be taken and negotiated until a mutual agreement can be made.

Section 62 of the Residential Tenancies and Rooming Accommodation Act 2008 (RTRA Act) states that a tenant must return the General Tenancy Agreement Form 18a within five days of issue.  Therefore, ensure that both lessor and tenants are in agreement with the relevant terms before physically issuing a written agreement.

Keep in mind that agents must act in accordance with a client’s instructions unless unlawful to do so.[1]

When the lease is coming to an end

Typically, the PM will contact the lessor three months prior to the end of the tenancy seeking instruction to either renew the tenancy or issue a Notice to Leave (Form 12). If the lessor instructs to renew, a new set of documents is issued to the tenant. It is common practice for a PM to also attach a Form 12 – stipulating to the tenant that if the lease is not signed and returned within five days, the Notice to Leave will be in effect.

This may sometimes cause tenants confusion. Therefore, as the engaged professional, it is your responsibility to explain the different possibilities that both the lessor and tenant may experience during the lease renegotiation process.

It is recommended that PMs notify their client that any renegotiation of a tenancy agreement could take time. Handling the negotiations effectively will result in maximising the client’s overall return and minimising the hassle for the tenant.

Successful negotiations a win for the agency

Successful negotiation of a lease renewal can have a positive result on the office workload and culture. Less vacancies mean a continuous income stream, less risk of losing a client to another agent because a property is vacant and less work for the property manager in conducting exit condition reports and finalising tenancies.

When first discussing the expiry of the tenancy with the client, it is important for them to understand their rights and obligations. Many lessors are not aware that if they require vacant possession at the expiry of the tenancy, they are required to give a minimum two months written notice to the tenant.

If the lessor doesn’t require vacant possession, it is recommended that you discuss current market conditions, factors that may affect the tenancy, timeframes etc. This information will help the lessor make an informed decision about presenting a tenancy offer to the tenant and any new terms that might be applicable. It is essential to determine the overall outcome the lessor wants to achieve from the renewal.

Deciding on future tenancy agreements

Under the RTRA Act, when a fixed term tenancy ends and the parties agree that the tenant can remain in the rental premises, the lessor and tenant need to decide on the future tenancy arrangements. This will ultimately be the first step in the negotiation.

Based on the Act, there are three ways a fixed term tenancy can continue:

  • extend the existing fixed-term agreement by agreeing on a new finishing date; or
  • enter into a new fixed-term agreement; or
  • do nothing and allow the agreement to revert to a periodic agreement.

An extension of an existing tenancy agreement can only occur where all terms and conditions remain exactly the same except for the new end date of the agreement. It is REIQ’s best practice recommendation that PMs prepare a new tenancy agreement where the parties have agreed to an extended or new tenancy agreement.

A time to review rent and terms

Entering a new agreement at the end of a tenancy is the ideal time review the current terms of the agreement and propose changes in accordance with the owner’s instructions.

Keep in mind that it must be at least six months since the last rent increase. There is no requirement to serve a notice about the increase.

If the parties do not agree on the terms of a new tenancy agreement and elect to continue the tenancy agreement beyond the fixed term, the parties may elect to enter into a periodic tenancy agreement.

The periodic agreement continues under the same terms that applied to the original fixed term agreement. A periodic agreement is NOT a new agreement. Rent can be increased if the tenant is provided with at least two months’ notice in writing and it has been at least six months since the last rent increase, or since the initial term of the tenancy started.

The tenant and property manager can end a periodic tenancy by giving notice.

[1] Property Occupations Regulation 2014 (Qld), Regulation 22.

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