What type of lease should you use?
The lease. This is the most important document that the landlord / property manager and the tenant have. It needs to be taken seriously, Shelly and I have often compared it to a marriage or a loan (please see our post on how to do a proper lease signing). There are several different types of leases, and it is extremely important to know which one you should use.
The following are questions and answers to help you decide which lease is best for you and your tenants.
What kind of lease terms are available in your province or state?
The kind of leases available in Nova Scotia are fixed term, weekly, month to month and annual.
A fixed term lease has a defined beginning and end. It can be 3 months, 6 months or 1 year. Notice does not have to be provided, and the tenant or landlord do not have to extend it any longer than the defined term. They do have the option to sign a new lease after the defined time. The tenure rules do not apply since it is a specific term.
A weekly lease requires 1 weeks notice by the tenant or notice by the landlord for specified reasons.
A month to month lease requires 1 months notice by the tenant or notice by the landlord for specified reasons.
In an annual lease the tenant needs to give 3 months notice before the end of the lease, or it will be automatically renewed. The landlord can only give notice for specified reasons.
What are the tenant tenure rules in your province or state?
In Nova Scotia the residential tenancy rules changed a couple of years ago. The biggest change was that as soon as a tenant moves in, they have tenure. The previous rule was that a tenant had to live in a place for five years before they had tenure. Please not the tenure rule does not apply to fixed term leases.
What does this mean for landlords in plain English?
The moment a tenant takes possession of a property they have all the residential tenancy rights stacked in their favor. They still have to abide by the terms of the lease, however, you cannot remove them from the property unless they stop paying rent, violate the terms of the lease, you as the owner plan to move in (or have a relative move in), or are doing a major renovation that makes the unit unlivable.
We have found the best lease to start any new relationship with is a fixed term. We start with a six month fixed term, with an option to renew as long as everything is going well for both the tenant and the building owner. The six month period gives both the tenant and us enough time to make sure it is going to be the right fit. If either party does not think it is the right fit, no other paperwork needs to be done. When the fixed term ends the tenant can just walk away. If the relationship is working out well, then all that needs to happen is a new lease needs to be signed. At the end of the six month term you can be a bit more flexible on how to proceed. I will caution you that if you sign a month to month lease, realize that the tenants only need to provide one months notice. That can put you in a serious time crunch to fill the vacancy.
What is your long term plan for the property, and how long to you plan to lease the property?
When you are leasing up a property it is important to know your long term or short term plan. If you are planning a major renovation sometime in the next 2 years, then you may only want to do fixed term leases. Fixed term leases will give you the specified time of when the property will be vacant.
How long does the tenant plan to live in the property?
When you are working out the details of the lease application with your potential tenant, it would be a good idea to ask how long they plan to live in the property. It might be easiest to write up a lease that works with the tenants timeline. For example if they are moving to a particular city for a one year work term, it might be a good plan to write 1 one year fixed term or do two 6 month fixed terms.
I hope this post gives you some insight into the types of leases that maybe available in your area.
Make sure you use the best type of lease for you and your tenant (it is a customer service business), know the rules, make sure to screen, build your portfolio with loyal, long term tenants that always pay the rent on time and enjoy leasing from you.
Michael P Currie