In recent posts, we’ve been discussing some of the nuts and bolts of putting Jason Hartman’s rental property investment strategies into action. Since the income stream from a fixed-mortgage property depends on the rents tenants pay, it’s essential to create the best possible relationship between you and the tenants who occupy the property you own. One important first step is to understand the types of tenancy that can apply to your property.
The lease agreement you create to establish a landlord-tenant relationship with your renters is legally binding, so all considerations, including the type of tenancy you choose, need to be clearly established. Although legal definitions of tenancy can vary throughout the world, in general the United States and most other countries observe four basic kinds of tenant relationships: fixed-term, periodic, at will and at sufferance.
Most leases operate on the fixed-term tenancy model. This type of tenancy establishes a fixed starting and ending date for the term of occupancy, usually in six-month or one-year periods, although terms can be much shorter or longer, depending on the situation. Fixed-term tenancy commits both parties to the term of the lease unless certain conditions apply. The tenant can’t break the lease early without penalty, and the property owner can’t evict the tenant without a valid reason such as non-payment of rent or breaking the terms of the rental agreement. However, a fixed-term tenancy agreement can be terminated if both parties agree.
Periodic tenancy arrangements are ongoing with no set beginning or ending dates. They simply continue in a series of rental periods unless one or both parties choose to end the arrangement. A common example of this type of tenancy is the week-to-week and month-to-month rental arrangements seen in vacation rentals or temporary housing. For some kinds of property this arrangement can bring in rental income more frequently than the fixed term lease, and landlords can end the arrangement easily by giving the tenant a written notice to vacate.
At Will Tenancy
Rarely advisable, tenancy at will can work if there are long-term, trustworthy tenants involved. This type of tenancy depends on a verbal or informal written agreement to maintain a lease arrangement without a full written lease. This model can work well under certain circumstances, though, especially in cases of very short-term rental arrangements. The informal and even verbal nature of these tenancy arrangements can be simpler for the owner, since they can be ended simply by giving the tenant a 30-day notice.
Tenancy at Sufferance
This is the type of tenancy nobody wants: when a tenant’s lease has expired, yet he is continuing to occupy the property. For this type of tenancy to be valid, the tenant has to continue to pay rent as defined by the lease agreement, and follow all other agreed upon rules. As long as these conditions are met, the tenant generally is not considered to be trespassing, and the landlord can’t engage in malicious acts such as cutting off utilities to force the tenant to leave. Laws on dealing with this kind of tenant vary from country to country, so it’s essential to know what the landlord-tenant law in your area has to say before trying to evict the tenant.
A successful rental investment property project depends on steady income from the types of tenants you want. Understanding the kinds of tenancy arrangements available can help to create the type of owner-tenant relationship that provides the best income stream from your investment. (Top image: Flickr | Community Photography ‘now & then’)
The Heroic Investing Team
Tags: at will tenancy, Fixed-term tenancy, jason hartman, landlord, landlord-tenant relationship, lease agreement, periodic tenancy, rental property, rental property investment strategies, tenancy at sufferance, tenant