It doesn’t matter if you’re just getting started with owning investment properties, or you’ve owned them for years, one thing you will encounter as a landlord is a tenant who wants to break their lease early.
The big question is what do you do when a tenant wants to break their lease? In this article we will answer this question and provide you tips on how to handle this situation.
Why Does the Tenant Want to Terminate their Lease Early?
Tenants want to break their leases for a bunch of different reasons—personal, professional, or because the landlord breached the lease. Depending on the reason, the landlord might be legally bound to release the tenant without damages (as long as the tenant follows protocol). In other situations, it makes sense to be compassionate and work with the tenant to find a solution.
Military Deployment: If your tenant is called for military or active duty, the Servicemembers Civil Relief Act allows those in the armed forces, National Guard, the National Oceanic and Atmospheric Administration (NOAA), and the U.S. Public Health Service the right to break their leases to start active duty or if their orders take them far away (50 miles is the accepted minimum distance). However, the tenant must first give you a 30-day notice, which is effective 30 days after the date the following rent payment is due. Meaning, a soldier could give you notice on July 17, but would still be responsible for paying August’s rent. After 8/31, though, they’re free to go.
Domestic Violence: In some states (like Nevada and Washington), landlord-tenant laws allow survivors of domestic violence, sexual assault, stalking, or unlawful harassment to break a lease and move if necessary. If your tenant sends an early termination of lease letter with this as the reason, consult your state laws to see what your obligations are. Even if your state doesn’t protect victims, it’s not advisable to force your tenant to stay in an unsafe situation.
Job Loss: It makes sense to be compassionate here. If your tenant can no longer supply the income that would allow them to pay rent, it doesn’t make sense for them to continue living in your rental. At this point in their lives, they wouldn’t have been able to pass the screening criteria you set forth when you rented the unit to them. Allowing them out of the lease is much less time consuming, arduous, and expensive than pursuing an eviction or getting a debt collector involved. Work with your tenant(s) to find a solution that works for both of you.
Divorce/Illness: Just like a job loss, a divorce or serious illness can severely impact your renters’ finances. Even though you’re not legally obligated to release your tenants from a lease in these extenuating situations, giving your tenant(s) an out makes a tough situation a little easier for all parties involved. For example, when a couple in your unit decides to split, rental payments could become a major source of contention. Similarly, if a tenant shares with you that they have to vacate because of a death in the family (either a co-tenant or a relative), or because of a serious illness, it’s advisable to be compassionate.
Job Transfer: Your tenants don’t have control over their job transfers, and some state laws allow tenants to break their lease for this reason.
Uninhabitability: As a landlord, you’re obligated to provide a safe and habitable place for your tenants to live. That means working gas, heating, electric, plumbing systems; operational sinks, toilets, showers; non-leaking roofs and walls; freedom from health hazards and pests; etc. If the unit is not livable or you’re unresponsive when a safety issue presents itself, your tenants are legally allowed to break the lease and walk away without covering your damages for loss of rent. After all, you’re not holding up your end of the bargain.
Intrusiveness: Though you own the property, you don’t have the right to enter it as you please. You must give your tenants a minimum 24-hour notice for entry unless there’s an emergency. Tenants have the right to privacy, and if you violate that, the tenant may break the lease. However, tenants must first give you a formal written warning telling you to stop coming over unannounced. Rarely may tenants break the lease for this reason without a written notice on the books.
If the tenant found a place they prefer, is moving in with their partner, plans to buy a home, or is relocating out of town, the landlord not on the hook to release them early.
Pro tip: Be prepared for your tenant to present false charges citing inhabitability or intrusiveness if they want to get out of paying you and the issue escalates to court. Keep maintenance records and photographs to show you maintained the unit well and made repairs quickly.
Your Duty to Mitigate Damages (Search for a New Tenant)
When your tenant sends you a formal early termination of lease letter and plans to vacate the unit prior to the end of the lease, in most states you’re obligated to search for a new tenant (legally coined “mitigate damages”). Legally, you can’t hold the tenant to the terms of the lease and collect rent from them while the unit passively sits vacant through the end of the lease.
Even if your tenant decided to end the lease during an off-season or at a time inconvenient to your schedule, you must make an effort to re-rent the unit. You might have to go through the same procedures you normally would at the start of the season, like marketing the rental, showing the unit to prospective renters, and so on. However, you don’t have to rent to the first person who indicates interest. You still must complete your screening process to be sure the applicant meets all of your criteria.
While you’re searching, your tenant is still responsible for paying rent. And in a few states, you can hold the original tenant liable for all of rent through the end of the term. However, once you fill the unit, your previous tenant is off the hook. Collecting double rent payments on the same unit is downright illegal.
Do Not Let the Tenant Find an Informal Sublet
As an act of good faith, the tenant might offer to help find a new tenant. This is not required, but can facilitate the process. You can also formally ask them to help you. As you would for any applicant you’d find on your own, screen the applicants the tenant finds and hold them to the same requirements.
Note: Do not allow the tenant to make commitments on your behalf by informally finding a sublet. You want to maintain your control over who you allow to live in the unit to make sure they’ll be good tenants and not damage your property or cause problems.
Early Termination of Lease Clause, Buy-Out Option, and Fees
To save both you and the tenant from all the complicated process of finding a new tenant, consider writing an early termination of lease clause into your leasing paperwork from the get-go. If you formalize the allowance of an early termination with associated fees, you can protect yourself as well as give the tenant an easy way out. It frees the tenant from being responsible for the remaining balance of the lease as well as gives you some cash to cover a few months of an empty unit while you search for a new renter. An early termination fee is typically two month’s worth of rent. Any more would be considered excessive by courts.
Many early termination of lease clauses include an early termination fee. However, you don’t have to include the option of paying a fee—you may simply require they pay rent until you find a replacement tenant. Additionally, if you don’t include an early termination of lease clause at all, the law requires the tenant to cover your losses until you find someone new. However, it helps to spell it all out in the lease.
What to Include In an Early Termination of Lease Clause with an Early Termination Fee
Work with your lawyer to develop a solid early termination of lease clause. Some points you may want to address are listed below:
Minimum notice for a tenant to request an early termination of lease (typically 30-60 days)
Notice must be written and signed by all tenants involved in the termination
Cost of the early termination fee (typically 1-2 months or rent)
The landlord will officially consider the lease terminated after receipt of the signed notice and early termination fee
All other rent for prior months or charges owed will be paid prior to the tenant(s) vacating
If the tenant does not follow the process, vacate before the agreed upon date, pay the termination fee, pay other incurred charges, or any combination of the latter, the attempted early termination will be void and every other aspect of the lease will apply
Draw this up with the proper legal language and include it clearly in your lease. When signing on new tenants, go over each clause to make sure everything is fully understood.
Contact RPM Central Valley
To learn more property management tips, or for more information on the services we can offer you, contact RPM Central Valley today by calling us at (209) 572-2222 or connect with us online.