Benefits of Fixed-Term Tenancy in Alberta

[Sherilynn]

I was asked this question recently, and decided to post my answer for all.

In Alberta, a fixed-term tenancy is any tenancy with a stated end date. It can be a year, or a few weeks, or whatever else is agreed. At the end of the lease, neither party is required to give notice to end the tenancy. Although no notice is required, it is a generally expected courtesy the landlord and tenant will provide some notice of non-renewal.

Furthermore, the landlord does NOT require a reason to end the tenancy at the end of the lease. This proves especially useful if the tenant mostly pays on time and is mostly a good tenant, but is a bit bothersome. (I recently chose non-renewal for exactly this reason.)

I start all of my tenants with a 3-month trial lease "to be sure everyone is happy." It is for the tenant's benefit to ensure he likes the neighbourhood and neighbours (especially useful in up/down duplexes); it is for the other tenants' benefit (especially if they have been excellent tenants for years and I want to ensure their continued satisfaction); and it is for my benefit because I can choose to not renew the lease if things aren't working out the way they should.

Yet another benefit to fixed-term leases is the handling of rent increases. No notice is required to increase rent at the end of a fixed-term lease, providing it has been at least a year since the last increase (or start of tenancy).

 

[alaas1977]

Hey Sherilynn

Fixed term leases are awesome, thanks for the great explanation.

Lisa

 

[DonCampbell]

Thank you for the post!

 

[Sherilynn]

My pleasure, Don. If more landlords understand the benefits of fixed-term, we would rarely see periodic leases.

One benefit I forgot to mention is the ability to schedule lease renewals. Gone is the uncertainty of the duration of a tenancy. Other than for exceptions such as economic hardship or job transfer, we can advance plan tenant turnovers.

We plan all of our renewals for March through September. It makes for a busy spring and summer, but we rarely have the supreme joy of filling a vacancy in the midst of an Edmonton cold snap.

 

[yaonchung]

Hi Sherilynn
Thank you for the great info. I am very new to investing in real estate income property. If you dont mind, can you please tell me more about this 3 month trial lease you used for the new tenant?

Luke

 

[Sherilynn]

Simply use your standard lease but write 3 months in the 'agreement term' section. After 2 months, give a notice of inspection and decide whether you will renew and for how long.

When explaining the trial lease to prospects, I say, "We start with a 3 month trail lease and then usually renew to round out the year (so a 9 month renewal) if everything is working out and everyone is happy." For good tenants, this would be a selling feature as they have an 'out.' For bad tenants, they may choose not to rent from you because they may realize they wouldn't be offered a renewal.

 

[Matt Crowley]

Fixed tenancy is a great tool for an investor but it comes with some limitations.

Edmonton today: We are in a falling rental market with increasing vacancies. Typically, renters do not consider the moving costs as costs coming out of their monthly budget. They look at saving $75 per month on rent and ignore the $600 in moving expense and the day off work.

You also need to consider the type of unit you have when offering the 3-month trial period. I wouldn't bother with a 3-month trial period with a bachelor suite condo for example. He could potentially end up saving $15 a month and have to move across the hallway. Perhaps different for a family who moves in with a van.

Another concern is trust and equality of bargaining power. I'm not sure I really like the idea of encouraging every landlord in Alberta to get a family to uproot their lifestyle and move into your property and then for the landlord to have the full, uncontested power in 3 months to get rid of them. The RTA already has many rules to prevent abusive tenants. So what about the landlord that uses this rule to up the rent $200 a month after the 3 month period? It's totally legal. This puts the tenant into a very vulnerable, unfair position. Just because someone is a renter doesn't mean that they should live their lives with total uncertainty. I think this is really skirting the spirit of the RTA and treating tenants like lowly serfs at the command of the lord.

Not a fan of this one.

 

[Sherilynn]

Proper tenant screening is key. On only 2 occasions in all of our years of using trial leases have we decided not to renew. In both cases, the tenants were not so bad we would have had an easy time evicting, and in the meantime our other, longstanding tenants would have been suffering. On the tenants' side, in one case the tenant took advantage of the trial lease because it hadn't occurred to her there would be spiders in a basement suite and she was terrified of spiders. So in all cases, the trial lease has been successful. (Tenants who move with nothing but a suitcase are not my target market.)

FYI, increasing rent after a 3-month trial lease is completely illegal. One may only increase rent a minimum of 365 days after the last increase or the start of tenancy (whichever the case may be), and providing it is not mid-term in a fixed term lease.

 

[alaas1977]

Hey Sherilynn

Regarding the 3 month leases, have the banks squawked at this? When I have applied for mortgages they did not like anything less than a years lease, they also wouldn't accept month to month and I was asked to convert to fixed term (tenants had no issues with this).

I like the idea of the three month lease and I don't think tenants would have an issue if you presented it well, however not sure I would use these in the market we are experiencing in Edmonton.

Lisa

 

[Sherilynn]

I have been using the trial lease strategy through boom and downturn, and to date I have had no questions from any banks. This surprised me as I thought they would want a 1-year lease, and I would have to explain my strategy. But no, no questions.

Also, I forgot to mention earlier I have never had a tenant use the trial lease privilege to move across the hall (or anywhere else) to save a few bucks. The only use of the privilege was the phobia issue. Again, proper filtering and screening of tenants is key to this strategy, but that should be the case for any landlording strategy.

 

[JJ OSOBA]

Excellent post! I learned this the hard way. Will never use periodic lease again.

 

[yaonchung]

Thank you so much for the great insight Sherilynn!!
I am wondering is there specfic law or regulation regards to scheduling a inspection. Or is there a particular way that you can put it in the lease that allows you to do so?

 

[Tina Myrvang]

Province?

 

[Sherilynn]

My pleasure.
As for the inspection, In Alberta I simply contact the tenant and request that we pop by for a quick look at the property, and mention it is standard procedure for lease renewals. We make an appointment, and I show up with the lease renewal in my folder. Providing everything looks good (which it almost always does), we sign the renewal. Occasionally the tenant is unable to meet me, so I leave the renewal on the kitchen table for him to sign and return.
I have never had a tenant question the inspection. Keep in mind, before I visit the property I already know if there are issues with the tenancy such as noise complaints, late rent, pet problems, etc.