Guide: What to Do When a Tenant Breaks Their Lease
Note: This guide is for early lease terminations in which the implied warranty of habitability and the covenant to quiet enjoyment have not been breached. In these cases, a tenant has the right to terminate their lease early and may have grounds for legal action against a landlord or property manager.
Unfortunately, tenants may choose to terminate their lease agreement before the end of the full lease term. As a landlord, it’s essential to have a strategy in place for tenants’ early lease termination, so you can act quickly and resolve the issue without too much of a headache.
This guide will teach landlords and property managers everything they need to know about early lease termination and what steps to take when tenants break their lease early.
Why Tenants May Break Their Leases
There are many reasons that a tenant may break their lease. Most times, a broken lease comes from an unexpected or unavoidable life change.
Generally, early lease terminations result in significant financial penalties for tenants, including early termination fees or even being responsible for covering rent for the remainder of their lease agreement post-move.
Here’s a breakdown of the most common reasons why a tenant may break a lease early.
Outlined in The Servicemembers Civil Relief Act, active-duty military service members who receive permanent change of station orders or are ordered to a new location for 90 days or more may terminate their lease early and are protected from penalties related to early lease terminations.
So, if your tenant is a military servicemember and they have been ordered to a new location and follows the proper protocol to notify you about the change, you may not impose termination penalties such as an early termination fee.
Job loss can be unpredictable or 100% the tenant’s fault. However, it doesn’t matter why the tenant lost their job. All that matters is that they are not earning income and may no longer be able to afford to rent your unit.
If this is the case, your tenant may choose to break the lease early to allow you to find a new paying tenant and allow themselves to find more affordable housing.
If your tenant receives a job transfer, they are most likely going to take it. Even if they don’t accept the job transfer, the decision may leave them financially unstable if they lose their job as a result.
Regardless, job transfers are bad news for lease agreements and are often undertaken at the tenant’s expense, though some companies may offer robust relocation assistance packages.
These packages can benefit landlords and property managers, as they allow the tenant to use a portion of these funds to cover early lease termination fees.
Breakups are tough on couples and living arrangements. If your tenants are a couple, married or otherwise, a breakup could result in early termination.
Most exes would prefer not to live in the same apartment as their significant other and are willing to incur substantial financial penalties to get as far away from them as possible.
In other cases, one partner may move out following a breakup, leaving the other unable to afford rent without their partner’s contribution.
Found a Different Home
Finding a different home can occur for several reasons, some of which are out of the tenant’s hands. Here’s a breakdown of some reasons a tenant may want to move out early:
- They have found and purchased a piece of real estate (house, condo, etc.).
- They intend to provide care for an ill family member and want to move closer to them.
- They are beginning a new relationship and want to move in with their partner.
- They have had an epiphany and want to live on a beach serving drinks by the seaside.
Unfortunately, if a tenant has made up their mind to move to a new home, you’re unlikely to be able to convince them to change their minds.
What to Do When Your Tenant Wants to Break Their Lease
When a tenant notifies you of their intention to break the lease early, it’s essential to have protocols in place that help you determine how to handle the situation.
That said, whether you’re proactive or reactive in an early lease termination situation, we’ve got you covered.
Here are the steps you should take when a tenant notifies you of early lease termination.
Review Your State Laws
Before taking further steps after your tenant lets you know they want to break their lease, you’ll have to consult your local and state-level laws regarding broken leases.
States may have laws that protect a tenant’s right to terminate a lease agreement early, so it’s important to act with these laws in mind.
For example, New York state laws protect tenant lease termination rights in cases when:
- A tenant is entering active duty military service.
- A tenant or their child is a victim of domestic violence.
- The rental unit is unsafe or uninhabitable.
- A tenant is 62+ years old and is moving to an assisted living facility.
- The tenant’s landlord fails to adhere to tenant privacy rights or harass your tenant.
When a tenant in New York breaks the lease agreement for any reason, they may not be responsible for paying any additional fees related to the early termination.
Of course, these rules will vary by state and locale, but they provide essential guidance that will help you determine your next move and ensure that you adhere to the law, and avoid incurring any negative legal consequences.
Additionally, most states have guiding laws for a landlord’s duty to re-rent after a tenant breaks the lease. Generally, landlords must make a concerted effort to re-rent the vacant unit after a tenant has broken the lease early.
State laws may also cover a landlord’s right to keep a tenant’s security deposit if they break their lease agreement early.
Ask Them If They’re Interested in Subleasing
If a tenant is interested in subleasing, more commonly referred to as subletting their apartment, it can take a whole lot of work off your plate.
In this scenario, the tenant will be responsible for putting in the time and effort to find a subletter for the apartment before they break the lease.
When it comes to the subletter who is approved for the unit, you have the final approval. Therefore, you will still be responsible for handling the tenant screening process.
That said, you won’t have to deal with advertising the unit, hosting tours, and all the other legwork required to fill an apartment vacancy.
Keep in mind that you need a sublease clause in your lease agreement. Many locales have laws that protect a tenant’s right to sublease their apartment.
When you include a sublease clause in your leasing agreement, you can set terms for the subleasing agreement, including payment terms, requiring written permission to initiate subleasing, and tenant screening.
Charge Them the Agreed-upon Termination Fee
A termination fee is another essential element to include in your lease agreement. A termination fee protects the landlord from bearing the full brunt of a broken lease’s financial implications.
Typically, a lease termination fee is one to two months’ rent. This amount gives the landlord or property manager enough time to fill the vacant unit without having to deal with lost income for at least a month or two.
Negotiate a Buyout Fee
Lease buyouts are more of a tenant Hail Mary than a proper landlord strategy to rely on when your tenant breaks a lease.
They are generally used whenever there are no alternative options, and a tenant would be legally responsible for covering the remainder of the lease agreement. In these cases, a tenant may attempt to facilitate a lease buyout negotiation.
Generally, the buyout amount is less than the amount that would have been paid over the rest of the lease’s duration.
However, it generally amounts to more than an early termination fee.
In this situation, a landlord has the opportunity to substantially reduce their losses due to a broken lease.
Should You Let Your Tenant Terminate Their Lease Early?
Whether you allow a tenant to terminate their lease early isn’t a decision that’s entirely in your hands, you’ll have to check in with local and state laws on tenant early lease termination.
Anytime you are unsure of the laws on the matter, you should consult with a lawyer. They will help to advise you on your next steps.
Although you must always adhere to the law, it’s also important to consider the financial fallout of a broken lease, so that you can determine the best legal course of action.
When all is said and done, allowing a tenant to terminate their lease early can mean lost income for the landlord.
Depending on the state of the market, the time of year, and the intended duration of the lease agreement, losses from broken leases can total well into the $10,000+ range.
That’s why it’s crucial to include an early termination fee and a subleasing clause in your lease agreements to help reduce your losses, so long as their inclusion complies with the law in your state and locality.
The bottom line? Know the law like the back of your hand. If you’re confused about anything, get legal advice from a lawyer before moving forward.