10 year leases

Lots of radio discussion in Melbourne regarding talk of encouraging longer leases. The talk is for 10 years!!!

I once had tenants stay for 11 years. I vowed I would never let that happen again. I had tried to keep up with the maintenance but during that time the Property Manager changed a number of times so was unaware of what had deteriorated during the previous time.

In the end I asked to have an inspection and was horrified at the condition, so gave them notice and had to completely renovate the house and garden!!

The discussion is about pegging rental increases. Sounds very controlling to me.

Chris

 

http://www.abc.net.au/news/2015-06-...e-to-ten-years-considered-in-victoria/6572026
and
http://www.theage.com.au/victoria/1...-by-victorian-government-20150624-ghwsmj.html

 

I was just thinking about that kind of agreement this morning.
Could do leases for residential on terms more similar to commercial, with rent rises in line with CPI or another index.

Not sure about how the fitout and bond would work though.

 

From the above ABC article....

Maybe we should look at the overseas models which is closer to our Commercial leases. The tenant rents, but is responsible for all utilities, landscape and maintenance.. In turn the tenants are allowed (pretty much) to do whatever they like as long as the rent is paid (strictly on time) and the property is left is a "rentable state" at the end of the tenancy.

Our current comm leases with X number of years and then options is a fair answer to the question of how to sell a rented property.

 

As both a renter and an IP holder, I'd go for this model.

 

I am all for long term leases if the states act was accommodating to a more neutral status rather than leaning towards to the tenant. Some examples that come to mind are:

1. Able to increase rental bond amounts in accordance to the achieved weekly rental (as per commercial leases)

2. Ability for access for major repairs and replacements without need for compensating the tenant

 

I would accept a 10 year lease with CPI increases if there was a government guarantee that came with it that protected me against default and vandalism.
Otherwise I'm out.

Since it's a government initiative to provide affordable housing for people that aren't well off, I don't think that's an unreasonable request

 

I like the idea and agree, tenants should be able to look after the property more in line with commercial/retail terms.That would take the onus off the landlord from doing major repairs, painting, new carpets etc.

 

The implications of granting long leases would need thinking through.

The unscrupulous could give their BIL a 10yr lease at a peppercorn rent & stop paying the mortgage - let the bank have it after the 10 yrs is up.

 

That doesn't make sense, the bank would still take the property of you and bankrupt you

 

I was talking to one of my Airbnb visitors about this. He said in Europe (I forget which country) where long leases are traditional, tenants often have to carpet and fit out the kitchen etc and 'make good' at the end of the tenancy.

 

The unscrupulous may know they are going bankrupt anyway. And it's not a good look for the bank to be kicking out a little old lady from her home when it is repossessed and they still have 9 years of a valid 10 yr lease to run.

AFAIK currently mortgage documents only allow a max of 2 yrs on any resi lease.

The point I'm making is that long leases need to be thought through from everyone's perspective.

 

They have a similar thing in parts of Germany. Lots of long term renters. The landlord can't make rent increases whenever they feel like it, there's a process.

 

On the other side, the landlord and the tenant both know when a rent increase is coming.

I'd sign up to a long term lease in an area I wanted to live and keep buying properties to rent out to other long term lessees in areas with perhaps more CG potential!

As a renter, I'd be happy to pay for fit out to get a property looking exactly how I want it (or if I couldn't be bothered with that, rent a place that looks exactly how I want it, then pay to restore it to how it looks at the end of the lease).
As a landlord, I'd be happy to delegate the maintenance and fit-out of properties to lessees.

I think approach would also gives you more certainly over income and expenses.

 

I don't trust my tenants to clean the air con filters now. I certainly would not trust them to maintain my property for ten years. The average renter, and PM, doesn't even know that HWS need topping up every twelve months. I bet they would never clear the gutters, then I'm left with water damage every time it rains. Clean an oven - really? They would burn the house down and it would somehow be my fault as the owner.

Secondly, in Europe I understand the tenant gets to install whatever kitchen and appliances they want. Um, they can barely afford the bond these days, how will they get a decent working kitchen, carpets, window coverings, lights etc.

 

As things are so tenant centric in Australia, I'd fight this tooth & nail. Tenants have all the rights, but no responsibility ATM. I can only imagine how bad things would be for the LL if we had to grant 10 year leases.

 

The above issues are real and need to be addressed. Could there not be provision in a lease for them? CPI rent increases every 12 months should sort out the rent. The bond could be increased every year. The PM has to do or check certain things at clearly defined intervals. Whilst there is scope for misadventure, the certainty of rental income is a positive, and there are no costs to find a new tenant. Properly managed, a longer lease could work.

 

I don't really see the problem with long term leases with commercial tenancy-like terms. I.e. The tenant is responsible for the maintenance and fit-out basically. Seems like a win-win for the tenants and landlords that want that sort of thing.

I don't really get the landlords that are pedantic about maintenance and cleaning - why would you care if it was on a long lease and the rent was coming in?

I'll probably actually make a formal submission along those lines to the Victorian review as well. I used to be fairly active in the tenancy law reform space through my work, and still have a lot of those connections.

 

Hello Thatbum
I'm pedantic about cleaning out filters and cleaning all the fat out of the oven and range hood so that the unmaintained appliances don't catch fire. Didn't you already know about this? The "average" renter is not legally responsible. It would logically follow that most of them have never had to learn to take responsibility for such things. Given your role as an advocate, please please please convince me that my fears are unfounded.

On the other hand, there are other tenants I've had that I would gladly sign on forever.