When is it better to conclude a fixed-term lease?

From law practice: The new Civil Code has limited the enforceability of certain contractual provisions for landlords

Some time ago, Mr. Robert contacted us. He felt that the Civil Code limited his contractual creativity. He became concerned that his strict contract did not comply with the new regime.

We double-checked the contract he brought to us. And indeed, we found several unenforceable provisions. It was a classic fixed-term lease, only ever for a few months. We recommended minor modifications, but we kept the basic one – the short lease term – as he wanted. This is a rather effective way for the landlord to protect himself from an irresponsible tenant.

It also opens up the possibility of increasing the rent, which must be agreed between the two parties for each subsequent period.

How does a fixed-term lease terminate?

A tenancy agreement concluded for a specific period naturally ends at the end of that period. However, it is possible to agree in the contract to an automatic renewal. In some cases, this can even be a very sophisticated mechanism.

When is it better for the landlord to choose a shorter lease term?

The most common reasons why landlords choose a limited lease term are:

1. Planned future use of the property: If the landlord plans to use the property for his own needs in the future (e.g. he wants to move in himself after a certain period of time, plans to renovate it or wants to sell it), he can set the length of the lease to fit his plans.
2. Flexibility: a fixed-term contract gives the landlord more flexibility to respond to market conditions. If market rental rates increase, he can set higher rents for other tenants after the fixed-term contract ends.
3. Testing the tenant: If the landlord is concerned about what the new tenant will be like, he can offer a short fixed-term contract (e.g. one year) to test whether the tenant is reliable and complies with the terms of the contract.
4. Regular contract updates: Fixed-term contracts allow the landlord to update the terms of the contract regularly and adapt them to current needs.

Extremes do not pay. If the landlord and tenant agree on a fixed-term lease of more than 50 years, the lease is deemed to have been agreed for an indefinite term, with the proviso that in the first 50 years the lease can only be terminated for the agreed reasons and at the agreed notice period. Thus, after 50 years, the lease is effectively transformed into a contract of indefinite duration. Until then, however, it can only be terminated as a fixed-term lease. However, this is more applicable to commercial leases, as the termination of a lease of a flat is also tied to the termination of a lease for an indefinite term.

How to terminate a fixed-term lease early?

In principle, early termination is possible for two reasons:

• A fixed-term lease can be terminated even earlier than the agreed lease term if this option is agreed directly in the contract. This cannot be done if it was contrary to the tenant’s interests and the law so provides.
• The second possibility of early termination is directly based on the privileged position of the tenant. It may do so if thecircumstances on which the parties based their obligation under the lease change to such an extent that the tenant cannot reasonably be required to continue the lease. The assessment of those circumstances depends on a number of circumstances and contexts. For example, a situation where the tenant is about to move to another city for work.

Automatic lease extension

If the tenant stays in the rented apartment for at least three months after the end of the fixed-term lease, the lease is automatically extended for the same period as the original lease. However, this does not apply if the landlord asks the tenant to leave before the expiry of that period. However, the notice must be in writing.

Do you really want a secure fixed-term tenancy to protect you from problem tenants? We would be happy to help you with such a tenancy agreement.