The biggest difference between the types of agreements lies in their validity. While a termless rental agreement is concluded for an unspecified duration, a fixed-term rental agreement is valid until a specific date and cannot be extraordinarily terminated early without a valid reason.
"Both we at Rendin and many property owners and experts recommend using termless rental agreements. The reason for this is the flexibility and security that a termless agreement offers, but a fixed-term agreement does not. For instance, only termless agreements can be concluded via Rendin, as our legal experts believe this is the best type of agreement for both landlords and tenants," explains Lia Siht, Head of Legal at Rendin.
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The main difference is related to terminating the agreement
Often, people are not familiar with the law and are unsure about how to terminate a rental agreement. The options vary depending on the type of agreement.
A termless rental agreement can be terminated at the request of one party with three months' notice. The notice must be in writing, and the recipient must acknowledge receipt. With the consent of both parties, the agreement can be terminated earlier. The agreement must be made in writing.
Extraordinary termination is permitted under the Law of Obligations Act (§ 314-319) if the reason for termination is sufficiently strong and the continuation of the agreement is no longer in the interests of both parties. "For example, a decrease in income or relocating to another city or country for a better job offer are not considered compelling reasons," explains Lia Siht.
A fixed-term agreement ends on the date agreed upon at the time of signing or earlier if both parties agree. It cannot be terminated ordinarily without a valid reason. "Typically, this includes severe breaches of the contract or delays in rent payments. However, the agreement can also be terminated extraordinarily if the residential space is in such a condition that its use poses a significant risk to the health of the occupants," explains Siht."
A termless agreement allows for quicker responses to changing situations
If the landlord encounters issues with the tenant or if the tenant no longer wishes to live in the rental property, a termless agreement can be terminated at the request of one party with a three-month notice.
"Our legal team occasionally handles cases where a tenant wants to terminate the rental agreement as soon as possible due to financial difficulties. In such cases, our first recommendation is always for the parties to find a compromise. Generally, the parties agree that the agreement will be terminated immediately after finding a new tenant. If the parties don’t reach an agreement, the contract will be terminated according to the law after three months,"
However, a fixed-term agreement is not as flexible. "If the landlord is not willing to terminate the fixed-term agreement early by mutual consent and there is no grounds for extraordinary termination, the tenant is responsible to the landlord until the date specified in the agreement," says Siht.
"Such a rigidly defined agreement can lead to situations where a tenant facing financial difficulties abandons the property and stops fulfilling their obligations, because they see no other way out of the difficult situation. The landlord then has to find a new tenant while also dealing with the previous tenant's debts," she explains.
"However, there can also be situations where the tenant simply wants to move to a new residence, but the landlord stubbornly insists on holding them to the end of the contract. With a termless agreement, the tenant only needs to give three months' notice of their intention to move out, and the landlord cannot prevent them," the lawyer adds.
A fixed-term contract makes it more difficult to raise the rent
The law states that the landlord has the right to increase the rent once a year for a termless rental agreement. "'There are two options for this: either notify the tenant of your intention 30 days in advance or agree with the tenant at the time of signing the rental agreement that the rent will increase periodically," Siht explains.
"During the validity of a fixed-term rental agreement, the rent can only be increased if the contract is concluded for at least three years and includes a clause for such increases. This means that, for example, with a two-year contract, the rent cannot be raised before the existing contract ends and a new one is signed. This holds true even if there is a justified need for an increase, such as significant changes in the rental market or a rise in the consumer price index," Siht clarifies.
"Before raising the rent, the landlord should carefully consider whether it is reasonable and justified. Landlords often overlook the risk of losing rental income instead of earning. A stable rental relationship is generally more reasonable than frequently increasing the rent and risking the property remaining vacant for extended periods," she emphasizes.
Which type of agreement protects against problematic tenants?
There is a common belief among property owners that it is easier to get rid of a problematic tenant (i.e., a tenant who does not pay rent but refuses to move out) when the fixed-term lease ends.
"This raises a question: Why would someone who has crossed the line of normal payment behavior and refused to make rent payments suddenly adhere to the agreement when the period ends? If the tenant has been ignoring agreements up to this point, they are likely to continue doing so in the future," Siht speculates.
It's also important to know that any fixed-term lease becomes a termless lease if the tenant continues living on the property after the term has expired without signing a new agreement. "In cases involving problematic tenants, regardless of the type of agreement, the landlord must go to the rental committee or court to evict the tenant. This process can be very lengthy and complicated, and the type of agreement or the duration of the rental relationship does not affect it," the lawyer clarifies.
"At Rendin, we usually manage to resolve such situations outside of court or more quickly than usual thanks to our carefully established processes. "We advise landlords when a tenant is in arrears and refuses to move out, and we help them quickly get rid of non-paying tenants with legally correct steps. Additionally, we compensate landlords for property damage caused by the tenant up to 10 months' rent, and cover lost rent and utility payments for up to three months," explains the Head of Legal at Rendin.
