Early Termination of Lease Agreement – Best Practices & Mistakes to Avoid

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You have all your properties rented, and things are chugging along nicely. Then you get blindsided by a tenant who wants to get out of their lease months before it ends.

This happens more often than you might realize, so you need to be prepared for how to handle it. You want a solution that meets everyone’s needs and not a mess that ends up costing you money. You could include language to cover the situation in your lease or have a termination of lease agreement drawn up as needed.

As the landlord, you need to know your obligations in this case, along with the law. Terminating a lease early can be a simple process or it can become fraught with drama if not handled correctly. Here’s a quick rundown of what to do and not do in this situation.

How to Terminate a Lease Early

Working with a tenant to break their lease is far simpler than trying to hold them to the contract they signed. You might already have language in your lease that covers how to handle this situation. If you don’t, you’ll want to get an early termination of lease agreement in place.

The agreement serves as an amendment to the lease and should state the obligations of both parties and what you’ve agreed to. As a best practice, you should have this in place and signed by both parties to ensure everyone is on the same page.

The agreement should include how long the tenant will continue to pay rent and whether there is a termination fee. As a rule, the tenant should pay rent until you have the place rented again, but know that you have a legal obligation to get a new tenant as soon as you can.

It’s called a duty to mitigate damages and means you have to be actively marketing the property at a fair market rate. You can’t just hold on to the empty property and continue to collect rent from the previous tenant.

If your tenant happens to be on a month-to-month lease, you have plenty of flexibility about letting them out of the lease. It can be a good option for a tenant who knows they’ll be leaving but is unsure exactly when because all that’s required is a 30-day notice to exit the lease. In exchange for the uncertainty you have about when the property will be available, you can charge more for rent than with an extended lease.

What to Avoid In the Lease Termination Process

You have the right to get hard-nosed about holding a tenant to the lease. It’s a contract they signed, after all.

But that doesn’t help anyone in the long run, and disgruntled tenants can do a lot of damage to the property or make it hard for you to show it. Along with that, there are a few reasons covered by law that require you to allow them to break the lease without penalty.

Don’t try to use their security deposit to cover any portion of rent. That’s not what the deposit is for, and the law tends to be pretty specific about how the deposit can be used. They should pay rent until the place is rented again, and you should then follow your normal procedure for returning a deposit.

Don’t let the tenant sublet the property. They might offer to help you find a new tenant, which can be a win for both of you. But you should follow your normal process to screen tenants and have them sign a new lease.

Don’t try to let the place sit empty and demand the tenant pay the rest of the rent required under the lease. You must relet the space as soon as you can. Make sure the termination agreement includes a provision to allow you to show the property to prospective tenants so you can rent as soon as possible and limit your losses.

Don’t charge excessive termination fees. They’re meant to help offset your loss from the terminated lease, not to be an accounting of your actual costs. Consider the area vacancy rate and screening costs when you set the fee, but most landlords charge one to two months’ rent as a rule.

Legal Reasons for Termination of Lease Agreement

Regardless of what the lease says, the law often provides options for people to get out of a lease under certain circumstances. In these cases, the protected classes can end the lease early without a penalty.

Military Service

Under the Servicemembers Civil Relief Act, military members can cut a lease short without penalty when they receive orders to transfer. They have to give notice of intent to leave along with a copy of the orders.

Domestic Violence

More than half the states have some provision for domestic abuse survivors to be able to get out of their lease early. The laws can get quite detailed, sometimes allowing a judge to split a lease to remove the abuser or extending to stalking or harassment situations.

Landlord Issues

Two things fall under this category. The first involves general harassment or interference with the tenant’s use or enjoyment of the property. It covers a wide range of behavior.

The second is when the landlord hasn’t kept the property fit and habitable. It’s called constructive eviction in the law is illegal in most states.

Other Situations

Some states allow tenants to break a lease because of job relocation, job loss, divorce, or family health problems. But most of the time, it’s your call on releasing them. These situations might keep them from being able to pay rent and letting them out is cheaper than eviction or debt collection.

Need Help Handling Early Lease Termination?

No one likes to see a good tenant leave, but there are times and situations when they must. When it happens before the end of the lease, you should get a termination of lease agreement in place if you don’t already have the language to handle the situation in the lease.

Need help with the termination process? Our team deals with hundreds of rentals daily, so contact us to talk about how we can support you and your rental business.

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