LANDLORDS GUIDE: EARLY TERMINATION OF LEASE AGREEMENT
It happens. Finally, one of your tenants asks about an early termination of lease agreement. Should you let your tenants out of their lease?
Indeed, the lease agreement between landlord and tenant will provide protection to both parties. In the event of an early lease termination, it mostly protects the landlord.
Yet landlords cannot force tenants to live in their property. State laws define legal protocol. So, should you let your tenant out of their lease agreement?
This landlords guide will provide you the insight how to handle said situation.
UNDERSTANDING WHY THE TENANT WANTS TO TERMINATE THEIR LEASE EARLY?
There are many reasons why tenants want to terminate the lease agreement early. Personal or professional reasons. Or, landlord breached the lease. Whatever the reason, the lease agreement and state Landlord-Tenant laws will dictate the proper procedures.
Before we explain several common reasons for breaking a lease, understand this is a fluid situation. Every landlord needs to judge their own conditions and make the best decision. Both parties have the lease agreement as a safety net. That doesn’t mean landlords cannot show compassion and find a mutual solution.
REASONS TENANTS WANT AN EARLY LEASE TERMINATION
Military Deployment: Due to the nature of their job, active military are commonly renters. These active duty personnel can be called for duty and shipped out of town.
If due to service, members are legally allowed to break a lease early. Servicemembers Civil Relief Act allows individuals in any armed forces to break their lease. This includes the National Oceanic and Atmospheric Administration (NOAA), National Guard, and U.S. Public Health.
These tenants are required to provide a 30-day notice. Taking effect on the next rent due date. A soldier who provides their 30-day notice on May 15 would be responsible for the full month of June’s rent.
Domestic Violence: Your state Landlord-Tenant laws may allow survivors of domestic violence, stalking, sexual assault, or unlawful harassment to terminate their lease early. Every state has different statutes for what and how landlords can handle this. We recommend researching your state Landlord-Tenant laws.
States determine if landlords can ask for verification. Or even determine if the offender can be held financially responsible.
Regardless of state law, we recommend landlords show compassion for their fellow humans who were victims. Do your best to work with the tenant, so they can find a safe home.
Loss of Job: There is no current state or federal protection for tenants who lost their jobs. We recommend working with the tenant to terminate the lease agreement, so they can find more affordable housing. If loss of work is only a temporary issue, landlords can work with their tenants on a creative payment plan. This could include signing a new lease agreement extending their stay. That protects landlords from vacancy. Consider adding a ramp-up rent schedule.
When tenants lose their job, they no longer “qualify” for your rental if they were applying today. Therefore, it is best to work with these tenants to resolve breaking the lease. Although not ideal, it is better than going through the eviction process, going to court or needing a debt collector. That is added stress for all parties involved. Landlords can negotiate a termination if the tenants leave the rental property in outstanding condition. This allows you to find a new tenant quicker.
Divorce: This also impact the tenant’s financial ability to pay rent. Divorces result in two people not wanting to live together or one person burdening the full rent amount. Both tenants legally remain on the lease agreement. So you could keep the lease intact.
Landlords who want to avoid drama would be wise to allow the divorced tenants to leave and find new tenants.
Illness: Sadly, getting sick can ruin an individual’s financial welfare. Tenant may be going through the illness or have passed away as a result. With death, that often leaves the burden of rent payments on the surviving tenant. While we always recommend compassion, this scenario usually is the most needed. And the most appreciated.
Job Transfer: Similar to active military, tenant’s job might transfer them out of town. Some states Landlord-Tenant laws allow these tenants to end their leases early.
Usually the best solution is their company pays for 2 or 3 months of rent. If it is a corporate move, companies typically pay for moving companies and know the employee might be leasing. This allows the tenant to leave while providing you an opportunity to find new tenants.
In fact, landlords can often profit more from this type of early lease termination! Finding a new tenant within the 2 months of paid rent adds more income to your pocket!
REASONS LANDLORDS CAUSE LEASES TO TERMINATE
Uninhabitable: Landlords are held to certain responsibilities and obligations. State statutes define the landlord responsibilities. Even if the lease agreement excludes the terms.
Landlords are obligated to provide a safe and habitable property for tenants. That means providing working appliances and utilities. This does not require landlords have to pay for utilities. Simply the property must be capable of receiving utilities.
Landlords must also keep the property from health hazards and pests.
When a landlord ignores complaints and requests from tenants to resolve these obligations, the tenant may break their lease. With no financial cost for doing so.
Illegal Entry: Another landlord responsibility is providing tenants the right to privacy. You may own the property but landlords cannot enter the rental unit unannounced.
There are exceptions to entry: emergencies or abandoned properties.
YOUR DUTY TO FIND A NEW TENANT AND MITIGATE DAMAGES
Like it or not, any tenant can provide a formal termination of lease letter and move out. There is nothing physically a landlord can do to prevent that. Some tenants understand there are financial consequences for doing so. Yet landlords legally must minimize those money consequences. Known as ‘mitigate damages’.
Landlords are legally required to search for new tenants. This allows the previous tenant to officially terminate the lease. You must make an effort to find replacement tenants. This may cause landlords to go through the entire leasing process again. Listing the rental, showing the unit, screening applicants and coordinating a new lease.
Luckily for landlords, you do not have to take the first applicant who is interested. Treat this search as any other tenant search. Applicants must meet your screening criteria.
During this time, your tenant is responsible for paying their monthly rent payments. A few states hold the tenant liable for rent through the full duration of the lease term. Once a new tenant has been approved and paid rent, the previous tenant is officially relieved of their lease obligations.
It is illegal for landlords to double up on collecting rent payments from both the previous and new tenant.
SHOULD YOU LET THE TENANT FIND A SUBLET?
Tenants know they are on the hook financially for breaking a lease. They have motivation to replace themselves so their rent obligation ends. Therefore, they will likely offer to find somebody to take over their lease as a sublet.
Should you let the tenant find a sublet?
No. Strong no!
Your lease agreement should prevent tenants from subletting the rental property. And for good reason.
You want to maintain control of your rental property. Especially who lives there. Afterall, the risk is more on the landlord than tenant for subletting. We encourage you to allow tenants to help find interested applicants. These interested individuals need to be properly screened for your criteria. Make sure to share that information with the tenants if they are helping.
You can suggest your tenants make a post on their social media accounts or ask friends. When it comes to vetting a tenant, they must go through the landlord.
EARLY TERMINATION OF LEASE CLAUSES AND FEES
Every lease agreement should include an Early Termination of Lease clause. This is your chance to define the procedure and fees if a tenant decides to break the lease.
Typical lease agreements state an early termination fee as two months’ worth of rent. However, as landlord you can put in a specific dollar amount not tied to rent amount. For example, $2,000 to terminate the lease.
Landlords are not required to define an early termination fee. You can require the tenant pays rent until you have replaced them with a qualified renter. Your state law will also provide a minimum obligation for tenants, in case your lease agreement doesn’t include a termination clause. Something this important doesn’t hurt to reiterate in the lease agreement.
WHAT SHOULD YOU INCLUDE IN AN EARLY TERMINATION OF LEASE CLAUSE?
Although your state law has a defined early termination term, landlords can include more specific terms in their lease agreement. Consult with a real estate lawyer to create a clause that meets your needs. Or, you can purchase lease agreements and adapt your own terms.
Solid early termination of lease clauses should include:
- Minimum Notice: How much time must a tenant provide for their termination. Typically, 30-60 days is standard.
- Format: Define how the termination notice must be received. Verbal or written. If written, what methods are acceptable: mail, email, text, etc.
- Fees: How are the early termination fees calculated?
- Effect Date: Upon receiving notice, when will the 30-60 days officially begin? Start of the next rent due date is typical.
- Termination Effective: Receiving notice isn’t enough. Landlords need to still hold the tenant responsible for termination fees. Indicate the lease will terminate upon receipt of signed and dated notice, as well as the early termination fee.
- Back Rent: State the lease agreement can be terminated with unpaid rent or charges owed. These need to be paid for prior to the early termination fee. Any termination fee will first be applied to unpaid rent or charges.
- Notification Void: Your termination clause clearly defines expectations and procedure to follow for the lease termination to go into effect. Include language stating the notification is void if the process is not followed, vacated before the agreed upon date, unpaid termination fees and all other obligations have been met. If not, the attempted early termination will be considered breached and in voided, leaving the lease in its original status.
SHOULD YOU LET TENANTS USE THEIR SECURITY DEPOSIT?
Your tenant will ask to use security deposit for their early termination fees. Afterall, security deposits typically consist of one-to-two months’ worth of rent. Nearly the same amount as termination fees!
Security deposit is intended for repairs to the rental unit that are beyond fixing normal wear and tear. You cannot know the final condition of the rental unit until the tenant has moved out. Then you can assess the condition on a move-out inspection.
By accepting security deposit for termination fees, you allow the tenant an opportunity to damage the property with no accountability. You can always file a claim at your small court but that is adding more time and stress. Keep the security deposit as a separate item and don’t mix its intention.
Tenants need to pay their early termination fee. Plus, monthly rent. Clear and simple.
Upon move out, landlords then perform the inspection. Take out whatever cost needed for repairs. You are legally responsible to meet your state’s security deposit refund policy. Often 10 to 14 days.
REQUIRING AN EARLY TERMINATION OF LEASE AGREEMENT
Lease agreements are there to protect both parties. They hold the tenant responsible. And they hold the landlord responsible.
When a tenant expresses interest of terminating their lease agreement, follow the lease agreement terms. Request written notice that is dated and signed.
Upon receiving any payments connected to breaking the lease, keep a record. This includes termination fees, unpaid rent and charges. It is important to receive all of these before the tenant vacates the rental unit.
SHOULD YOU LET YOUR TENANT TERMINATE THE LEASE EARLY?
Real estate comes down to risk and who burdens it. As a landlord, make sure you understand the termination process and the potential risk your decisions have.
Sometimes moving on benefits both parties. Landlords don’t want tenants who are eviction risks.
While we acknowledge real estate is legal heavy, it is also a people’s business. Having compassion for another person does not mean sacrificing your own morals. In a perfect world, landlords and tenants work together for a solution that benefits both parties. If you know you can easily replace the tenant, don’t feel like you must ‘stick it to them’ in this process.
Handling the termination of lease agreements is one of the many jobs for landlords. If it is too much work, consider hiring a property manager to coordinate all of this. Burbz is the first and only software solution that allows landlords to hire a property manager, share access to property data and have the rent go directly to the landlord! You can learn more about our landlord-friendly solution to better property management or self-managing.