When Should You Choose a Fixed-Term Lease? Benefits and Rules

Quick Overview

• A fixed-term lease agreement ends upon the expiration of the agreed-upon term without the need for notice of termination.
• This is suitable, for example, when the landlord plans to sell, renovate, or use the apartment themselves at a later date.
• Early termination of a fixed-term lease is more restricted than that of an indefinite-term lease.
• If the tenant continues to occupy the apartment for at least three months after the lease ends and the landlord does not request in writing that the tenant vacate the premises, the lease may be renewed under the conditions prescribed by law.
• The parties may also specify the terms of renewal directly in the lease agreement.

Not sure whether a fixed-term or indefinite lease is more advantageous for you? Have our attorneys review or draft your lease agreement. We’ll help you set the lease term, termination options, and renewal provisions so that the agreement protects your interests while complying with the Civil Code.

From Legal Practice: The New Civil Code Has Limited Landlords’ Ability to Enforce Certain Contractual Provisions

Some time ago, Mr. Robert contacted us. He felt that the Civil Code was limiting his contractual flexibility. He began to worry that his strict lease agreement did not comply with the new regulations.

We reviewed the contract he brought us. And indeed, we found several unenforceable provisions. It was a standard fixed-term lease agreement, always concluded for only a few months. We recommended minor adjustments, but we retained the fundamental element—the short lease term—in accordance with his wishes. This is, in fact, a relatively effective way for a landlord to protect himself against an irresponsible tenant.

It also opens up the possibility of raising the rent, as both parties must agree on the rent for each subsequent period.

How does the termination of a fixed-term lease work?

The simplest way to terminate a fixed-term lease is for the agreed-upon term to expire. For example, if you have a lease from January 1 through December 31, the lease will generally end on December 31 without the need to give notice. However, the parties may also agree in the lease on the terms for its further extension.

When Should You Choose a Fixed-Term Lease, and What Are Its Advantages?

The benefits of a fixed-term lease are particularly appreciated by landlords who need to have better control over the future use of their property. However, this doesn’t mean that a fixed-term lease is always better than an open-ended lease. It depends primarily on how long you want to rent out the property and what your future plans are for the apartment.

The most common reasons landlords choose a fixed-term lease are:

1. Planned future use of the property: If a landlord plans to use the property for their own needs in the future (e.g., they want to move in themselves after a certain period, plan to renovate it, or want to sell it), they can set the lease term to align with their plans.
2. Flexibility: A fixed-term lease gives the landlord greater flexibility in responding to market conditions. If market rental rates rise, the landlord can set a higher rent for subsequent tenants once the fixed-term lease expires.
3. Tenant Screening: If a landlord has concerns about a new tenant, they can offer a short-term lease (e.g., for one year) to assess whether the tenant is reliable and complies with the terms of the lease.
4. Regular Contract Updates: Entering into fixed-term leases allows the landlord to regularly update the terms of the lease and adapt them to current needs.

Extremes do not pay off. If the landlord and tenant agree to a lease for a fixed term longer than 50 years, the lease is deemed to have been agreed upon for an indefinite term, with the provision that during the first 50 years, the lease may be terminated only for the agreed-upon grounds for termination and within the agreed-upon notice period. The lease agreement thus effectively transforms into an indefinite-term lease after 50 years. Until then, however, it can be terminated only as a fixed-term lease. This, however, applies more to commercial leases, since the termination of a residential lease is subject to specific conditions even in the case of a lease agreement for an indefinite term.

How do I terminate a fixed-term lease early?

Terminating a fixed-term lease before the agreed-upon date is not as simple as simply waiting until the end of the lease. Therefore, first check the lease agreement itself—it may contain specific grounds for termination or conditions under which the lease can be terminated early.

Furthermore , under the Civil Code , a tenant has the option to terminate a fixed-term lease if there is a fundamental change in the circumstances on which the parties relied when entering into the contract, and it would be unreasonable to expect the tenant to continue the tenancy. This could include, for example, an unforeseen need to move for work. However, not just any change in personal plans is sufficient—it always depends on the specific situation.

Another option is an agreement between the tenant and the landlord. If both parties agree on the termination date and the terms for handing over the apartment, they may terminate the lease by mutual agreement even before the originally agreed-upon date.

From our legal practice, we know that a common problem is the tenant’s belief that they can terminate a fixed-term lease at any time with a “standard” three-month notice. However, such a general right does not automatically apply to fixed-term leases. Therefore, we recommend addressing the options for early termination when drafting the lease agreement.

Do you need to terminate a fixed-term lease early but aren’t sure whether you have the right to do so under the lease or by law? Send us your lease agreement. An attorney will review it and recommend the safest course of action for you.

How does the extension of a fixed-term lease agreement work?

A fixed-term lease may be extended by mutual agreement of the parties, through a mechanism specified directly in the lease agreement, or, under certain conditions, by law. If the tenant continues to occupy the apartment for at least three months after the date the lease was supposed to end, and the landlord does not request in writing during this period that the tenant vacate the apartment, the lease is deemed to have been renewed for the same term as originally agreed, but for no more than two years. This does not apply if the landlord and tenant have agreed otherwise.

Tip for landlords: If you do not want the expired lease to be renewed in this way, it is not enough to simply assume that the tenant knows the lease expiration date. If the tenant remains in the apartment after the lease ends, request in writing—and in a verifiable manner—that they vacate the premises.

Do you want a truly secure fixed-term lease agreement to protect yourself from problematic tenants? We’d be happy to advise you on drafting such a lease agreement.

Summary

A fixed-term lease agreement gives the landlord greater certainty about when the lease will end and is suitable, for example, if the landlord plans to use the apartment themselves later, renovate it, or sell it. For the tenant, on the other hand, it means less flexibility in the event of early termination. The lease typically ends upon the expiration of the agreed-upon term, but it can be extended by mutual agreement, in accordance with the terms of the contract, or upon fulfillment of statutory conditions. If the tenant remains in the apartment for at least three months after the lease ends and the landlord does not request in writing that the tenant vacate the premises, the lease may be renewed for the same period, but for no more than two years. When entering into a lease agreement, we therefore recommend clearly defining in advance not only the duration of the lease but also the terms for its renewal and any early termination.