Insights

The Victorian Government are currently considering whether or not residential investment properties should be able to propose super long term leasing.

Currently, the longest term on a lease in the state of Victoria is five years. However, the proposal being considered asks whether landlords should be allowed to offer lease terms of five to ten years.

Caroline James, writing for RealEstate.com.au, asked Hodges Sandringham Director Katie Pickering about what she thought.

“From a tenant’s point of view increasing the term to five years will mean the security of staying in one place for an extended period of time,” Pickering says.

“However, with that comes the restriction of limited flexibility.

“Even at present a lot of tenants break their lease due to different circumstances like losing their job, family issues, or unforeseen circumstances.

“This means that they are responsible for the rent until a new tenant is found and this can cause stress for all related parties.”

Katie goes on to tell James that unlike commercial rentals, which outline CPI increases, super-long-term residential leasing will make it harder to assess the rental increases as these would have to be stipulated before the signing of the lease.

“Predicting rental increases for three years is feasible, however predicting the value of a rental property five years ahead (or over) is incredibly difficult,” she says.

“The upside is again the security of having a single tenant, which would particularly be beneficial for those who hold an investment property for their super fund.

“(But) everyone’s circumstances change, therefore getting a tenant out who is in a fixed term tenancy can be very difficult. This is particularly the case if you do not have a good tenant. Having long term leases of five-plus years is something I see as difficult to control.”

If you were a landlord, would you want to offer a super long term lease? Read the full article here.