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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Enhanced Reporting

Your portal includes a selection of extremely useful reports. Reports are available in the “Reports” section, and are distinct from the financial statements. Unlike financial statements which are static records, Reports are dynamic real-time records that will update with current data every time you view them. 

Scroll down to learn more about Reports:

Navigate to the "Reports" module in your portal:

Owner Portal Reports
  • Keep in mind, these reports are dynamic records. They will refresh to display current information every time you view them. 

Enhanced Rent Roll Report:

Enhanced Rent Roll Report
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Unit Comparison Report:

Unit Comparison Report
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Income Statement Month-Over-Month:

Income Statement by Month Report
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Financial Statements

Financial statements will be published to your portal on a monthly basis. The statements are found in your Documents library, and provide a historical record of all financial performance. The statements serve as a snapshot of financial performance over a given period, and are static documents (unlike Reports, the statements do not update/change in real-time). 

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The Documents area contains monthly financial statements:

Owner Portal Documents
  • The statements in the Documents are are static documents. They are posted to the portal once a month to serve as a historical record of financial performance. 

Download a statement to see month and YTD financials:

Owner Portal Property Statement

You'll also find a month-over-month operating statement:

Month over Month Statement

Portal Communication Tool

You can use your owner portal to communicate with our team. Any messages you send through the portal will go straight to your Account Manager. When we reply, you’ll get an email notification and you’ll also see the message in your portal next time you log in. 

Here’s an overview of using the communication platform:

Click "Communications" and navigate to "Conversations":

Commincation Dashboard Screenshot
  • The communications module will contain a record of all messages that you create through the portal. 

Click the "New Message" button and send your message:

Owner Portal New Message Screenshot

Responses will show up in the conversation ticket:

Portal Conversation Response Screenshot
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You can reply in-line using the comment box:

Owner Portal Comment

Each conversation will be logged in its entirety:

Portal Conversation Snapshot

Understanding the Ledger

Your portal includes a ledger with all transactions. The ledger is populated with data in real-time as transactions flow through our accounting software. Much of this information is also available in the Reports area, as well as the Statements in your Documents library, but the ledger is the most comprehensive resource for diving into the details. 

Please scroll through the sections below to get a better understanding of how to interpret the ledger. 

By default, transactions are sorted chronologically:

Owner Ledger Dates
  • The date reflected in the lefthand column is the actual transaction date, not the “bill date”. This is the date the transaction was actually processed. 

If you have multiple properties with Nomadic, you'll see the address for each transaction in the "Location" column:

Ledger Property Column
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  • If you only have one property with us, you’ll just see the ledger for that property. 

The Description column displays the transaction type:

Owner Ledger Description Column
  • BILL: this is an expense transaction, such as for repair costs or management fees.
  • CHARGE: this is a transaction  billed to the tenant, most typically a rent payment. 
  • NACHA EXPORT: this is a credit we processed to your distribution account. This type of transaction is how you get paid! 

The Amount column shows the dollar value of each transaction:

Owner Ledger Amount Column
  • Positive Amounts: if an amount is positive, it reflects a transaction that is payable to you. Typically, this will be a rent payment that we collected from your tenants. On occasion, a positive number could also signify a journal entry or credit adjustment. 
  • Negative Amounts:  if an amount is negative, this is a transaction that is either payable to Nomadic or is an amount that has already been paid to you. Typically this will be for repair costs or management/leasing fees. Owner draws (net distributions into your checking/savings account) also reflect as negative amounts, since they have already been paid to you. 

The Account Balance column shows a sum of positive/negative transactions at a given point in time:

Owner Ledger Account Balance Column
  • Account Balance should always equal zero after a net distribution has been processed. When the balance is zero, this means that all expenses have been paid and you’ve received the remainder as net operating income, leaving a balance of zero (meaning: no one is due any money, as all funds have been distributed appropriately). 

Navigating the Propertyware Owner Portal

Your portal includes some extremely useful features that help you understand your property’s financial performance at a new level, with real-time transparency into every transaction.

Scroll through the snapshots below for an overview of portal navigation! If you need more help or have specific questions about using the portal, you can reach out to your Account Manager any time for a screen share. 

You can filter all info by date range or property:

PW Portal Filters

View a snapshot of income and expenses on your dashboard:

PW Owner Dashboard View

See every transaction in real-time on your ledger:

Owner Portal Ledger View

Statements and forms will be posted to your documents library:

Owner Portal Document Library

View a suite of real-time financial reports:

Portal Reports View

See a running list of all bills, and drill down for more detail:

Owner Portal Bills View

Under Bill Details, you'll find dates/descriptions/amounts and more:

Portal Bill Details

You can also communicate with your Account Manager through the portal:

Owner Portal Communication Tools

How do net distributions work?

Net distributions keep your accounting clean and simple. Each month we’ll collect rent from the tenants, deduct any repair expenses for the previous month and any management/leasing fees for the current month, and credit the remaining net operating income to your account. 

Net Distribution

You’ll receive a statement via email each time a net distribution is processed, and can view all transaction details in your Propertyware owner portal.