Lease agreements can be fixed-term or non-fixed term contracts. A fixed-term agreement is valid for both parties for a fixed period of time. A non-fixed term continues until one party ends the contract by, for example, terminating it. In a non-fixed term agreement, it is possible to specify the earliest date when the agreement may be terminated.
Non-fixed term agreement
A non-fixed term agreement is somewhat more flexible than a fixed-term agreement. This agreement is your best option when you do not need a specific date for ending the lease. In this case, the lease continues until one party ends it by, for example, terminating the agreement.
The drawback of this agreement for both parties is the uncertainty that the option to terminate the agreement inevitably brings with it. You may think that you have found a long-term tenant but suddenly they terminate the agreement and you only have a month to find a new tenant. This brings additional expenses and wastes your valuable time. On the other hand, the tenant may have to move out suddenly because the landlord needs to sell the apartment. It should be noted that tenant is better protected with a longer period of notice.
Fixed-term agreement
A fixed-term agreement is valid for both parties for a fixed period of time. This is a good option if the landlord or the tenant wants to secure the lease for a specific period of time. A landlord may want a fixed term due to, for example, an international assignment, and a tenant perhaps due to a local daycare or school that their children have gotten accustomed to. Outside the exception described below, the length of a fixed-term agreement can be set freely. A fixed-term agreement is convenient also because it has a specific end date and neither party needs to do anything to end it, i.e. no notifications are needed.
On the other hand, there are a number of challenges related to fixed-term agreements. A fixed term always requires a written agreement. If a verbal agreement is made, the agreement is considered a non-fixed term agreement, regardless of what was verbally agreed. Vacation homes are an exception as their fixed-term agreements may also be verbal. Also, you are not allowed to make three consecutive three-month (or shorter) lease agreements for a residential apartment. The last of these agreements would be considered a non-fixed term agreement regardless of what was verbally agreed. So, if you make more than two three-month fixed-term agreements with the same tenant, the third agreement becomes a non-fixed term agreement with a termination requirement. However, this limitation does not apply to business premises. There are no limits to how many short-term agreements can be made for business premises.
In principle, fixed-term agreements cannot be ended until the term has passed, unless the agreement is rescinded. And rescission always requires legal grounds. In other words, remember that a fixed-term agreement cannot be terminated unless the parties mutually agree to do so, or you have court order. Even in this case, the party requiring the early termination is financially liable for any damages to the other party.
Changing your notice of termination start date and so-called ’mixed’ agreements
A fixed-term agreement ends as the term comes to an end. No actions are required. A non-fixed term agreement inherently requires a notice of termination. Landlords often try to guarantee a long-term lease by making a so-called ’mixed’ agreement that begins with a fixed term of one year and continues with a non-fixed term unless the agreement is terminated within a specific time period. However, this agreement is often considered a non-fixed term agreement because ending it requires a notice of termination. It would also be possible to terminate it at any point like any non-fixed term agreement. In any case, these ’mixed’ agreements are ambiguous and any disputes arising from them are often disadvantageous to the landlord.
Thus, it is recommended you enter into a non-fixed term agreement and add a condition that specifies the earliest possible start date for the period of notice. This ensures an agreement that lasts for as long as the parties want, for example, six or twelve months. Also, you avoid the risk of a one-sided termination that a ’mixed’ agreement brings. This is possible if the other party decides to terminate the agreement during the first year of the lease.
The start date of the period of notice is particularly important to landlords that find the constant flux of tenants and the costs of finding new tenants problematic. Since certain longevity and continuity is of consequence to both the landlord and the tenant, both parties should carefully weigh the available options when trying to secure a long-term lease.