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Home ownership is often seen as the great Australian dream, but the reality is that one-third of us rent where we live. Renters tend to be under the age of 35, and renting can be seen as a stepping stone to buying a home, while for others, renting is a convenient and flexible life choice.
As plenty of us will experience life as a tenant at some stage, it’s worth having an idea about the distinction between renting and leasing.
What is the difference between renting and leasing a property?
Although the terms ‘renting’ and ‘leasing’ are often used interchangeably in Australia, there is a distinction between the two when it comes to property agreements.
In short, a lease is a contract to grant someone the use of an asset, like a house or apartment, for a specified period of time, typically in exchange for regular payments. Renting involves a tenant periodically paying a property owner (often referred to as a landlord) money to live in a house or apartment.
The two are often seen as two sides of the same coin, in that a tenant rents a property that a landlord has agreed to put up for lease.
The term renting is less common in commercial property, where the term leasing is more often used. However, the periodic payments paid by the tenant in these situations can still be referred to as rent.
How do residential property leases work?
The laws can differ from state to state, but in general, short-term contracts for a fixed period of time are the most common type of lease or rental agreement in Australia. Terms of six or 12 months are the most common, though longer and shorter lease periods may also be available in some cases – most states do not set a limit on the length of tenancy agreements.
Some properties are rented on a periodic basis, meaning the lease can be ended at any time, albeit with a legally required notice period. Properties may revert to a periodic lease once a fixed-term lease is completed, if the landlord and tenant do not sign a new agreement.
Rent is usually paid at fixed intervals, such as every fortnight, and paid either to the landlord themselves or via a property manager or real estate agent. If a tenant fails to pay rent, they may be issued with a breach notice and eventually, even be evicted.
When leasing a residential property, a landlord generally agrees to provide a home that is safe and habitable, and to provide repairs when things go wrong – such as when the hot water system breaks down. However, if the tenant caused the damage, they can be asked to foot the bill for repairs.
Likewise, landlords and property managers will typically collect a security deposit, known as bond, from the tenant at the start of the lease. This is normally the equivalent of around four to six weeks’ rent and it acts as security for the landlord if the tenant doesn’t follow the terms of the lease – for example, leaves the property owing rent. When the tenant vacates the property, if the place is in good order and there is no damage, the tenant should receive this money back when they vacate the property.
A tenancy agreement may also include other conditions, for instance some may state that no pets are allowed on the property.
Do rental payments change during a lease?
During most six or 12-month fixed-term leases, rent cannot be increased unless the landlord and tenant have already agreed to an increase in the tenancy agreement. Even then, there may be restrictions around how often rent can be increased. For example, in Queensland, a landlord must wait until at least six months after the start of a tenancy, or the previous rent increase, before lifting the rent. They are also required to give the tenant two months’ notice of the increase.
However, if the landlord and tenant have agreed to a longer-term lease, there may be scope for additional rental increases. In NSW, for instance, if a fixed-term agreement is longer than two years, the landlord may increase rent at any time with 60 days’ notice, but can only do so once a year.
It can generally be easier for a landlord to increase rent during a periodic lease. Typically, landlords need to give the tenant a legally required period of notice, such as four weeks or 60 days depending on the state or territory, before raising the rent.
Main image source: Zerbor/Shutterstock.com
Article original written by Evan Schwarten.
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