Your renter signed a one-year lease agreement and wants out three months early. What do you do? Step one: Don’t panic!
Naturally, some renters will ask to break their lease because of any number of things: a job transfer or loss, health issues, breakups, etc. State and federal laws vary, so you might have no choice but to let some renters out of their leases. Also, you might grant certain exceptions because you’re not likely to collect rent debt anyway, believe you can quickly find another tenant, or want to preserve good relations. Or maybe, it’s just the right thing to do. No matter what, breaking up is hard to do; it can be a stressful and spontaneous situation to deal with.
What to Do When A Tenant Asks to Break Their Lease
There is no one-size-fits-all solution for handling tenants who want to break their lease; it’s important to review your policies to make sure you minimize the impact, encourage communication, and manage expectations for both renters and staff. A lease is a binding contract—you have the right to enforce it. Here are three common strategies property managers use to deal with broken lease agreements.
The “No Exit” Strategy. Some property managers never allow tenants to break a lease unless they have a legal exception. In this case, you will need a strategy to collect debt. This includes your own accounts receivable process, third-party collection companies, and perhaps even legal action. You may find that some tenants won’t be motivated to keep their unit in good shape if they know they will lose their deposit and get chased down for rent anyway. It’s also not possible to predict what courts will decide is fair, and legal matters tend to get expensive.
The “Great Compromise” Strategy. In many areas, you can’t keep collecting rent if you manage to re-rent the property. If the tenant communicates early, you might agree in writing to only hold them accountable for rent due until you can find another tenant. This might encourage them to leave the property in good shape, stay in contact, and pay what they owe. If the renter has a good reason for leaving and offers you advance notice, you may decide that a compromise is in your best interest.
The “ET Fee” Strategy. You don’t have special powers and can’t predict the future, but you can anticipate that some percentage of tenants will break their leases and, if it’s legal in your area, include an early-termination fee in the lease agreement. This solution seems easiest, but it doesn’t always hold up if it’s challenged in court. If you find another tenant, the old renters may claim that you are using this fee to charge rent twice for the same unit. Also, the presence of an early-termination fee in the contract may encourage some renters to exit early.
Which strategy does your property management business take and why? Let us know in the comments!
Can You Evaluate Lease Termination Requests on a Case-by-Case Basis?
The law may protect some tenants and allow them to get out of their leases without consequences. Obviously, you will have to adhere to any federal, state, or local regulations that apply to your property. The situation gets complicated when the tenant has no legal exception but still isn’t likely to pay rent after they move out.
Since property managers are humans too, you may be tempted to evaluate requests to break a lease early on a case-by-case basis. If a tenant becomes seriously ill or loses a job, you may find that it’s just good business to let them go. In these cases, you might have to spend money on collections and legal fees—money that would be better spent on finding another quality tenant. However, if you grant exceptions, you could make yourself vulnerable to charges of discrimination. It’s best to consult with an attorney about these practices.
The truth is that most property managers do have some avenue to allow tenants to break leases without paying rent for several months that might remain on the lease. Tenants should expect to lose security deposits and face other consequences for breaking their contract. It’s most important for you to anticipate the fact that some tenants will break leases and to have clear guidelines for how to handle different situations. It’s also important to make sure your policies are legal in your area and likely to hold up in court.
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