The upcoming changes to New Zealand’s Residential Tenancies Act (RTA), effective from the 30th of January 2025, are set to reshape the landscape of rental agreements. Historically, fixed-term tenancies were the preferred type of Tenancy Agreement. However, since the previous Labour Government made radical changes to the Residential Tenancies Act back in 2020, the need for fixed-term tenancies diminished due to landlords needing a valid reason to end a tenancy. Periodic tenancies became the norm as they offered tenants flexibility and landlords had little need to prefer fixed-term arrangements. However, the new amendments may signal a shift in this dynamic, and I believe we will see a significant resurgence in the use of fixed-term tenancies.
A Landscape Once Dominated by Periodic Tenancies
Under the existing RTA, landlords needed valid grounds to terminate any tenancy, whether fixed-term or periodic. This requirement, combined with the automatic transition of fixed-term agreements into periodic tenancies upon expiry (unless both parties agreed otherwise), diminished the appeal of fixed-term arrangements. Most landlords opted for periodic tenancies as they offered simplicity and flexibility while adhering to legislative requirements.
However, this flexibility often came at the cost of landlords’ long-term security. Even if a fixed-term tenancy was in place, landlords faced the same restrictions when seeking to end the tenancy early or upon its conclusion. The lack of differentiation between tenancy types meant there was little incentive to choose fixed-term arrangements
The amendments to the RTA bring critical changes that alter the landscape for both periodic and fixed-term tenancies. Notably, landlords will no longer require a valid reason to end a fixed-term tenancy at its conclusion, provided they give notice within the required timeframe (90 to 21 days before the end date).
This change marks a significant shift. Landlords are now presented with a tool that allows them to regain control of their property at the end of a fixed term without facing the same barriers associated with periodic tenancies. On the other hand, periodic tenancies remain subject to stricter termination rules depending on the circumstances, such as the sale of a property.
For landlords, fixed-term tenancies now provide greater security and flexibility. These agreements guarantee rental income for a defined period while also offering the freedom to choose whether to extend or terminate the tenancy at its conclusion. This
ability to end the agreement without needing a valid reason, coupled with the protection from claims of retaliatory termination, makes fixed-term tenancies an attractive proposition.
Moreover, fixed-term tenancies provide a structured framework for landlords to plan property maintenance, renovations, or sale. Knowing that a tenancy will end on a specific date allows for better long-term planning, a benefit that periodic agreements cannot offer due to their open-ended nature.
At Property Brokers, most tenancies are currently periodic. This reflects the the current legislation that we work under, where periodic agreements were seen as the path of least resistance under the previous legislative framework. However, I anticipate a shift in strategy as landlords and property managers adapt to the new rules.
Property managers will likely begin advising landlords to consider fixed-term agreements as a default option. The increased security and predictability offered by these tenancies will likely drive this change. Additionally, fixed-term agreements can help mitigate disputes over termination, providing clarity for both landlords and tenants.
Balancing Tenant and Landlord Rights
While the changes benefit landlords, it is crucial to consider the implications for tenants. Fixed-term tenancies reduce the flexibility tenants currently enjoy under periodic agreements. Tenants may face increased pressure to renew agreements or vacate properties at the end of a term, which could impact housing stability. However, these concerns can be alleviated through clear communication and mutually agreed terms at the outset of each tenancy.
At Property Brokers, we are committed to helping landlords and tenants navigate these changes. As the industry evolves, so too must our strategies, ensuring we continue to deliver the best outcomes for all parties involved in the rental process.
