Generally speaking, the most common type of rental arrangement in Nigeria’s Real Estate dealings is the fixed-term leases which usually have a minimum duration of a year or more depending on the term and conditions agreed upon the landlord and the tenant.
As published in the Punch Newspaper dated September 4, 2017, the Federal and State Government came to a resolution that Nigerians may start paying property rent on a monthly basis. This resolution was made at the 6th meeting of the National Council on Lands, Housing and Urban development. It was mentioned that it would become a law which would be enforced so as to enhance access to housing finance.
A Fixed-Term Lease is a rental agreement between the landlord and tenant for a specific period of tenancy usually a year or more than that. It is the most common form of lease arrangement. A month-to-month (monthly basis), is an arrangement whereby tenancy is renewed at the end of each month, it may or may not have a documented lease/tenancy agreement between the landlord and the tenant.
Both lease systems are beneficial to the parties involved, while the landlord considers a fixed-term agreement a gain to him, the tenant also considers the monthly basis a profit to him
FIXED TERM AGREEMENT – BENEFITS TO A LANDLORD
- Provides security and peace of mind to the Landlord knowing he has a fixed income for the period of the Agreement.
- Enables the Landlord to forecast and budget accordingly for any expenses or refurbishment required.
- Rent increases/rent review is written into Tenancy Agreements.
- It allows for a more coordinated use of the property which can reduce maintenance cost.
FIXED TERM AGREEMENT – DEMERITS TO A LANDLORD
- It is inflexible: The tenant can’t move out early without a potentially serious penalty.
- If the rental home is in a neighbourhood where rents are rising quickly, the landlord may earn below-market-value rent for at least part of the lease term.
FIXED TERM AGREEMENT – BENEFITS TO A TENANT
- It offers a tenant security and predictability: Because the lease is a binding contract between the landlord and tenant, none of the terms of the lease, such as rent, can change unless both landlord and tenant agree. Additionally, it allows the tenant have some certain right which is to be respected by the landlord.
FIXED TERM AGREEMENT – DEMERITS TO A TENANT
- The tenant may find himself in an uncomfortable situation which might not be the fault of the landlord for a year or longer. E.g if neighbouring use of land is causing noise pollution, flood and he feels disturbed, he does not have much option than to remain in the lease.
MONTHLY BASIS AGREEMENT – BENEFITS TO A LANDLORD
- A month-to-month lease gives the landlord much more flexibility in removing non-paying tenants since the lease can be terminated for any cause as long as a 30-day notice is given.
- It also makes it much easier for the landlord to increase rents when the market dictates rather than wait for a long-term lease to expire before applying the increase
MONTHLY BASIS AGREEMENT – DEMERITS TO A LANDLORD
- The rate of vacancy of the property is increased and as such, the property will not produce income.
- There may arise an indiscriminate use of the property because it is just for a short term.
- It does not create room for comprehensive screening of tenant, and as a result the possibility of making a wrong decision is high.
- It shift control from the hands of the landlord to the tenants.
MONTHLY BASIS AGREEMENT – BENEFITS TO A TENANT
- It affords the tenant the ability to divert some portion of the lump sum usually paid for a yearly tenancy to other needs.
- Usually, most monthly basis rentage property are furnished, so it cut cost of the tenant in having to acquire some household items that would be necessary for a yearly tenancy period. In other words, it cut cost and expenses.
MONTHLY BASIS AGREEMENT – DEMERIT TO A TENANT
- The tenant may be forced to pay a higher rent which when calculated annually will be higher than the normal yearly rent.