Landlords with Missing Link Property Management, consider the following question: so your tenant wants to break the lease early. Now what? We know that they signed a legal document that binds them to the terms, including to pay rent through the move-out date stipulated in the rental agreement. However, as much as the lease serves to protect the landlord, there are also laws in place to protect tenants when they want out. As a Missing Link Property Management property owner, it is important that you have an understanding for how to handle these situations so that you can communicate clearly and fairly, follow legal protocol, and ultimately, meet your bottom line. 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 best for all parties. 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. “ 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. The Buy-Out Option An early termination of lease clause will help set the guidelines for a buy-out option—that is, the fee the tenant would pay to get out. However, the landlord doesn’t have to have an early termination of lease clause to negotiate a buy-out. Because you’re allowed to continue charging your tenant for rent until you find a replacement, tenants might find it more attractive to pay a non-refundable fee to end the relationship and vacate. As previously mentioned, this fee is typically two-months worth of rent. If the tenant has more than two months left on the lease, this might seem like a deal. And if you find someone in less than two months, you don’t have to refund the tenant a prorated amount for the time there was overlap. However, if you end up searching for a new tenant longer than two months, you can’t go back to the original tenant and ask them to cough up more. It’s up to you whether you want to include a fee or require the tenants pay rent until you find a replacement. On one hand, offering a buy-out is convenient and simple, but on the other, you might find yourself searching longer than you bargained for—and be out more money than you anticipated. If you’re concerned you may have to take your tenant to court for refusing to pay rent while the unit is vacant, a buy-out option is a good way to reduce this risk. In the event you do have to take your tenant to court, all you need to do is present a signed copy of the lease and state which months your tenant owes you for. Also, be prepared for the tenant to present false charges about inhabitability and intrusiveness to get out of paying as previously mentioned. This is especially necessary if the tenant simply ups and leaves regardless. Don’t (Necessarily) Seize the Security Deposit as Rent Requiring an early termination fee is legitimate, however, seizing the security deposit and using that as rent is not advisable. You collected the security deposit to make any repairs to the unit caused by the tenant’s occupancy beyond fixing normal wear and tear. If you put this money toward rent, you no longer have the funds to make the repairs as you normally would need when a tenant moves out. You also should consider that a tenant who wants to terminate their lease will likely anticipate losing their deposit. In this case, they’re more apt to deliberately damage the unit or not pay the rent anyway. You’ll need this deposit to make the repairs and then file a claim for uncollected rent. Requiring an Early Termination of Lease Agreement Nothing is official until it’s in writing. Make sure your tenant draws up a written notice to terminate the lease and signs it. Keep it with your records. Additionally, confirm you’ve received the payments you’ve requested prior to them vacating (termination fees, unpaid rent, other charges, etc.). Should You Let Your Tenant Terminate Their Lease Early? As always, it depends. Your relationship with your tenants and reputation as a landlord matters just as much as your bottom line. You can’t make them stay, but you can remind them of their obligations on the lease continue to hold them financially responsible until you fill the unit. A rock-solid lease will help you out and make sure you’re compensated when tenants want to leave. Additionally, consult with an attorney any time you think your rights and responsibilities outlined in the original lease may change as well as to avoid the instance of a lawsuit (initiated by either you or the tenant). Keep in mind that if you let one tenant break their lease and not another, you run the risk of discrimination. It’s best to have a policy you can apply to all tenants. Managing your tenants, finances, and documentation is a lot of work, especially when things get complicated. Consider bringing on a property manager to handle all of the ins and outs of tenant turnover and leasing, communication, and more. If you’re ready to start looking for a property manager in your area, Missing Link Property Management is here to help