As a property manager, it’s very important to have a good work relationship with your tenants. This can sometimes be difficult though, especially if the tenants in question don’t adhere to the terms of their lease agreement and want to end the contract early.
Lease agreements can either be fixed-term agreements or periodic agreements. Periodic agreements don’t have an end date and run until either the tenant or the owner give written notice to end the agreement. Fixed-term agreements run until the date that the owner and tenant agreed upon in the contract.
Fixed-term agreements can seem very rigid and inflexible, but that’s only because they have to be in order to ensure that both the tenants and the property managers and landlords are protected in those specific cases where one party decides to willingly breach the contract.
If you’re faced with a situation where either the tenant or the landlord wants to end a lease agreement early, then here are a few things that you might need to know in order to properly handle the situation.
When a tenant wants to break the lease
Potential reasons why a tenant may break a lease:
- The landlord refuses to fix issues that might make the property an unsafe or unaccommodating living space
- They are unable to keep up with the rent due to health, financial, or personal problems
- The landlord is in breach of the lease agreement
The proper way to do it
All the tenant needs to do in order to break the lease before the agreed-upon date is to hand in a written notice of intention to leave. If things go well and both parties are able to properly communicate, then they should be able to come to some sort of arrangement.
However, since the tenant is the one to initiate the lease termination, they’re going to need to provide financial compensation to the owner.
The compensation claim is most likely going to include the advertising costs to find a new tenant (if any were incurred), as well as rent payment until the property is re-let or until the original end date of the lease, depending on whichever comes first. Additionally, if the tenant was the one that started the process, it’s more than likely that a dispute over the refund of the bond will follow as well.
The details will vary for each lease break and many contracts already have compensation claims for exactly these kinds of situations, but the tenant should be prepared to pay quite a lot if they don’t have a good reason to terminate the lease.
Least risk involved
In the situation that the current tenant can find a new tenant for the property, then they may be able to forgo the advertising fees and maybe not have to make quite so many additional rent payments.
They also have the option to file a lease termination request to QCAT on the grounds of excessive hardship. This basically means that due to work or health-related reasons they’re unable to keep up with their rent payments and are requesting to be released from the lease.
However, QCAT may decide that they still need to provide certain compensation even if their claim is valid, but at least some charges like the advertisement fee might be taken off of the compensation claim.
Lease breaks are usually decided on a case-by-case basis, as all of them will have factors that will determine the height of the compensation that needs to be paid to the tenant or owner, depending on which party is responsible.
However, there are a few exceptions to the otherwise usually strictly regulated lease agreements that allow the tenant to get out of the contract without paying any reparations.
If the landlord doesn’t properly maintain and repair the property or if the tenant does not have access to basic amenities like running water at all times, then the tenant can file a notice to end the lease agreement on the grounds of habitability standard violations. The tenant also has the option to take other steps if the landlord is still uncooperative, and complain directly to the QCAT.
The landlord is also not allowed to enter the property without giving the tenant prior notice of up to or more than 24 hours. Even with given notice, the landlord will still need to give a valid reason such as conducting an inspection or maintenance in order to gain access to the property. Otherwise, any attempts by the landlord to enter without permission will be grounds for the tenant to file harassment charges against the landlord or a notice of lease termination.
The tenant may have extenuating circumstances that the law recognizes as valid reasons to be able to end the lease agreement earlier. The circumstances in question are if the tenant is the victim of domestic violence or is on active military duty. In both cases, the tenant will only be allowed to break the lease if they provide the landlord with a written notice that’s delivered at least 30 days before the desired date of termination.
And finally, the tenant is also allowed to get out of a lease agreement without any penalty, if the property that they rented is in fact not a legal rental unit. Depending on the state laws, the tenant may be entitled to the return of most or at least some of the rent they paid during their stay, including the moving fee.
When Property managers and owners want to break the lease
Potential reasons why owners may break a lease:
- Because the tenant is late with their payments or is otherwise in breach of the lease agreement;
- Because the value of the property has gone up and they want to re-lease it and charge a higher rent;
- Because there is another interested tenant.
Ending the lease early yourself
In order for a landlord to break a lease ahead of the agreed-upon date, they’re going to need to acquire an order from QCAT for the tenants to move out, otherwise, there is no legal way to forcefully remove the tenant off of the premises.
The owner can obtain the order by providing evidence that the terms of the lease agreement were not being honored by the current tenant. After that, if the order is issued, the tenant is given a set time to move out of the property and they are charged certain fees by the property management company, which they need to pay to the landlord.
Reach an agreement
A simpler way in which a property manager or owner can break a lease agreement early is to negotiate with the tenant and come to a mutual agreement as to the new end date of the lease. Depending on the agreement, this date can either be fixed or set until the tenant finds a new place to live.
The property manager will have to draft a new lease agreement. The tenant will, of course, be exempt from any advertising charges or rent fees after the new termination date. They will be allowed a certain period of time to find a new property and their moving costs will be covered by the property management company, unless the agreement they made says otherwise.
Certainly, the easiest way to break a lease without the landlord suffering much financial loss is to include a termination provision in the agreement itself. This way you can make sure that the terms of breaking the lease early are clearly covered in the contract and that both parties were aware of and agreed upon the conditions ahead of time.
Each termination provision will differ slightly, but they will all need to state how long after the beginning of the lease period or before its end will the owner be legally allowed to end the contract ahead of time at an agreed-upon date. The provision will also need to contain the exact sum that will need to be paid to the tenant before they’re asked to end the lease early.
What we described above are all of the ways that a tenant or an owner can potentially break a lease in Australia, and all the justifiable and unjustifiable reasons for doing so.
What’s your take on this topic? Is there any particular language that you feel an owner should include in their lease agreement in order to avoid financial loss in these sorts of situations?
We’d love to hear about your approach. Leave a comment below and let us know what your policy is.