Should I Let My Tenant Break the Lease?

by | May 16, 2011 | Rental Forms

There are a number of reasons a tenant may want to break the lease: relocation for a new job, a chance at buying a home, or unexpected expenses that force them to move in with family.

But lease-breakers can cost both time and money, and you may not have calculated that into your profit goals for the rental property. Should you allow your tenant to break the lease?

To answer that question, a landlord must fully consider what’s at stake.

Pros and Cons

On the one hand, the lease is a legally binding agreement — an asset, if you will. If you allow some tenants out of their obligation but not others, you risk a claim of discrimination. If you freely allow everyone out of the lease, your turnover costs may skyrocket.

On the downside, in most areas a landlord is required to make a reasonable effort to find a new tenant whether they agreed to the early vacancy or not. If the landlord takes the lease-breaker to court, the judge may only allow compensation for the time the unit is actually vacant, along with any damage caused by the tenant.

The tenant who wants out early expects to lose their deposit, so they are more likely to damage the unit or abandon it and not pay the rent anyway.

Finding and bringing the tenant to judgement costs money, which may or may not be recovered. Once the tenant feels backed into a corner, they likely will try to dredge up some reason why they were justified in leaving early–poor repair records, pest control problems, faulty heating or air conditioning. Occasionally, a tenant will falsely report building code violations in an attempt to discredit the landlord’s claim.

Lease Termination Fees

While an early termination fee charged to the tenant may seem like the middle ground, some legal experts warn that the fee charged could be deemed excessive if challenged in court. In fact, an Ohio law firm currently is advertising on the Internet for tenants who have paid early termination fees and want to sue their previous landlord.

The legal arguments against lease termination fees rest on the fact that the landlord has a duty to find a new tenant, and may be profiting by collecting “rent” from two tenants at once. Lawyers also argue that the landlord may have breached the lease by providing poor property management before the tenant moved out, and therefore is not entitled to full compensation.

What Are the Options?

1. Never allow an early lease termination. If the tenant leaves, find a new tenant and pursue the old tenant for the difference.

2. Agree to early termination, either in writing or verbally, so long as the tenant remains accountable until the property is re-rented. The landlord only collects the actual amount owed, so there’s no claim for illegal fees, and the tenant has incentive to keep the property in good shape and not sabotage the efforts to get a new tenant.

3. Anticipate lease-breakers and include a set fee in the lease based on the estimated time it will take to get someone else in there. This clause can included specific, acceptable reasons for early termination. The fees should be reasonable based on the actual loss.

It is important to note that military personnel and domestic violence victims may be allowed to break the lease without consequences in some circumstances.

Keep in mind that once you start to negotiate an early termination or accept money from the lease-breaker, you may be changing your rights and responsibilities under the lease. Consult an attorney if you need guidance.

Many property managers we speak with do allow some manner of early termination, especially where they fear there is potential for property damage–which can cost more than the vacancy, or if the tenant likely will abandon the property and be difficult to track down.

What do you do when a tenant wants to break the lease?

This post is provided by Tenant Verification Service, Inc., helping landlords reduce the risks of renting with fraud prevention tools that include Tenant Screening, Tenant Background Checks, (U.S. and Canada), as well as Criminal Background Checks, and Eviction Reports (U.S. only).

Click Here to Receive Landlord Credit Reports.

Disclaimer: The information provided in this post in not intended to be construed as legal advice, nor should it be considered a substitute for obtaining individual legal counsel or consulting your local, state, federal or provincial tenancy laws.

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