Steps for Smoothly Handling Early Lease Terminations
Tenants will terminate early at some point. In those cases, having a plan can help you cycle out old tenants and introduce new ones quickly—and fairly and transparently for every party involved. Here are some strategies to make that happen.
Maintaining Effective Communication Channels with Tenants
Establishing and maintaining clear lines of communication with your tenants is pivotal when navigating early lease terminations. Regularly check in with your tenants, listen to their concerns, and address any issues they might face. A proactive and empathetic approach can foster amicable solutions, preventing conflicts and misunderstandings.
Documenting All Interactions and Agreements
Always keep a comprehensive record of all discussions, agreements, and any modifications made to the lease. Doing so can prevent disputes during early lease terminations. Carefully document all communications, including emails, written notices, or revised terms. These records serve as valuable evidence should any disagreements arise, and having them on hand makes it easier to stay clear and transparent throughout the leasing process.
Ensuring Proper Inspection and Deposit Refund Procedures
Conduct a thorough joint (both you and the tenant) inspection of the property before the tenant's departure to assess any damages and establish an agreement regarding the condition of the premises. Following state regulations, promptly refund the security deposit after deducting legitimate costs for damages, if any. Transparently communicate the refund process and any deductions made to maintain a positive relationship with the tenant and facilitate a seamless lease termination process.
Early Termination of Lease Clause, Buy-Out Option, and Fees
To save you and the tenant from all the complicated process of finding a new tenant under a time crunch, consider writing an early termination of lease clause into your leasing paperwork from the get-go. If you formalize the allowance of early termination with associated fees, you can protect yourself and 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 lease clauses include an early termination fee. However, you don't have to include the option of paying a fee—you may require that they pay rent until you find a replacement tenant. Additionally, if you don't include an early termination of lease clause, the law typically 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 include:
Minimum notice for a tenant to request an early termination of lease (typically 30-60 days)
The stipulation that the notice must be written and signed by all tenants involved in the termination
Cost/fee associated with terminating a lease early (typically 1-2 months or rent)
Notice that the landlord will officially consider the lease terminated after receipt of the signed notice and early termination fee.
Notice to pay all outstanding charges owed (including other rent for prior months) before the tenant(s) vacate.
The stipulation that 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, review each clause to ensure everything is fully understood.
The Buy-Out Option
An early termination of lease clause will help set the guidelines for a buy-out option—the penalty 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 can 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 mentioned, this fee is typically two months' rent, which might seem like a deal if the tenant has more than two months left. 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 search for a new tenant longer than two months, you can't return 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 that the tenant pay rent until you find a replacement. On one hand, offering a buy-out is convenient and straightforward. Conversely, you might search 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 an excellent way to reduce this risk.
If you 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. Also, be prepared for the tenant to present false charges about habitability and intrusiveness to get out of paying, as previously mentioned.
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 you usually would need when a tenant moves out.
It would help if you also considered that a tenant who wants to terminate their lease would likely anticipate losing their deposit. In this case, some tenants may 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
It will be official once 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 requested before they vacated (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 and hold them financially responsible until you fill the unit. A rock-solid lease will help you stay in the black when tenants want to leave.
Lease terminations are among the most sensitive and legally tenuous parts of managing a rental property. Always consult with an attorney any time you think your rights and responsibilities outlined in the original lease may change to avoid 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. Having a well-defined policy you can apply to all tenants is best.
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