Tricky Tenants - Breaking Leases Early
What to do when the tenants you just signed want to leave the property before they should. . .
One of the most challenging issues that we see in property management is a request from tenants to end a lease before the Mutual Break Clause is activated. It’s an emotionally triggering issue for landlords who believed there was financial security on the horizon.
During these uncertain times, we’ve handled this issue numerous times for the properties that we manage. There are numerous routes through this issue and every landlord has choices they can employ.
A mutual Break Clause is inserted into a contract to give both parties the opportunity to exit the agreement before the end of the fixed term expires. To put a little bit of context on that idea, most lease agreements are erected as a 12 month contract with a six month break clause. This means that the amount of the rent (the monthly / weekly charge) will remain fixed for 12 months but either party may exit the agreement from six months (tenants can leave a property or landlords can request that tenants vacate the property).
So, is the landlord under an obligation to accommodate a request from tenants to break a lease agreement early. We would always advise reading your contract in full, but the short answer to that question is “no” – a legally signed lease agreement needs to be honoured by both parties.
Having said that it’s important to consider that landlords have options when these situation arise:
Holding Tenants to the Agreement: Landlords can respond to tenants to declining their request to exit the agreement early. There is always a risk that tenants will leave anyway and not pay the rent. This leaves the landlord without tenant and a legal pursuit to recover rent – an expensive and stressful option.
Re-tenanting: Landlords can allow tenants to leave the lease agreement early so long as a new set of tenants is found to take over the lease. Under this condition, tenants would need to grant access to the property for viewings (keeping it neat and tidy) and agree to cover the rent until a new tenancy begins (along with any agency costs).
Releasing Tenants from the Agreement: Holding tenants when they don’t want to be there is always a risk, sometimes cutting losses and moving forward is the best option. Landlords are free to release tenants from an agreement if they choose to do so. The focus should then be on finding quality tenants that offer a higher degree of stability.
The most important thing to remember is, in these situations, keeping lines of communication open is critical. Agreeable, happy tenants are more likely to accommodate requests and treat the property well. We find that most people are reasonable if you give them a chance and offering choices as opposed to issuing commands is usually the better option.
Remember, your rental property is a corporate microcosm – a little service industry business that runs because it’s profitable. The focus should always be on keeping that asset as lucrative as possible, which is easier done if you focus on goals rather than obstacles.
Key point to remember if this arises in a tenancy:
Tenants are not “forever”: Tenants do not stay in property forever, all lease agreements come to an end
Tenants are human too: Your tenants probably didn’t expect to leave the agreement early and are doing their best to “figure it out” as they go (remember, they may be scared about their own financial situation)
Communication is critical: Keeping the lines of communication is the best way to overcome obstacles and issues as they arise
Be Flexible, if possible: Keep the focus on finding new tenants and not become consumed with the idea that you’re losing the ones that are in place – remember, all property will rent if it’s positioned correctly in the market.
Reflect on the situation: In order to avoid this situation in the future, think about what changes can be employed in new tenancies to ensure longevity and stability.
Being a landlord isn’t always easy, hiccups happen. Ensure you’re prepared with information and options; this will help to organise thoughts and define available paths. Keep your focus on maximising the return and do your best to work towards that. Remember, be kind to yourself – make the best decisions that you can and learn from the experience. This will make you a better landlord and business owner.
The contents of this website do not constitute legal advice and are provided for general information purposes only. We are not in any way providing legal advice or creating any kind of retainer with you; it is simply our desire to share some practical experience and tips.
Do not act or refrain from acting upon this information without seeking professional legal advice: you are strongly advised to obtain specific, personal legal advice about your case or matter and not to rely on the information or comments in this website or blog.