How to Handle Early Lease Termination

All landlords want tenant stability. Tenant turnover can be a cash-flow killer, not to mention time-consuming. That’s why finding the right tenant is so important! However, despite your best efforts, you may have tenants who want to break their lease or move out right before the term expires.

Close up of business woman hands breaking contract document sitting on a desk at the office

Here’s a look at how to handle early lease termination, legitimate reasons for breaking a lease, and some other options you can offer to minimize issues like vacancies and loss of rental income. Please note that this is for informational purposes only and is not intended as financial or legal advice.

Things to Consider Before Making a Decision

When a tenant wants to break their lease, you generally have two options (depending on where your property is located):

  • Say no, and risk the tenant becoming frustrated or difficult to manage.
  • Say yes, and allow the tenant to break the lease on the condition that they pay an early termination fee or upfront rent payments for the rest of the term (which is hopefully mentioned in your original lease).

Neither of these situations is ideal; you either have a disgruntled tenant on your hands, or you’re left with a vacant property.

Before you make a decision about whether to allow the tenant to break their lease, make sure to review your state and local laws. Many areas require landlords to mitigate damages if a tenant moves out before the lease is up. For example, in California, Civil Code 1951.2 states landlords cannot require tenants to cover unpaid rent that could have been reasonably mitigated by re-renting the property.

In this case, if a tenant has six months left on their lease and the rent is $2,000 per month, you could only charge the tenant for the time that the unit stayed vacant. However, you would also need to do everything you normally do when you’re searching for a new tenant, like advertising, showing the property, and screening applicants.

If you can’t find a new tenant despite your best efforts, then the tenant will be responsible for the rent due for the remainder of the lease. You would deduct this amount from the security deposit first, and then if needed, take the tenant to small claims court for the rest of the unpaid rent. Keep in mind that you can’t collect double rent. So if the tenant’s lease ran through May, but they left in February, you can’t collect rent for April and May if another tenant is now occupying the property.

So, if your tenant wants to break the lease, you should:

  1. Stick to the terms of your lease. A thorough, well-drafted lease agreement should include an early termination clause that outlines the potential fees you can collect if the tenant decides to move. This could include paying the remaining rent for the remaining lease term or a flat fee.
  1. Find a new tenant. If your property is located in an area that requires you to mitigate damages, you should start searching for a new tenant as soon as possible. This will ensure you meet the mitigation requirements and reduces the chances of your property staying vacant once the current tenant is gone. If you have difficulty finding a replacement tenant to pay the full amount of the original rent, you can charge the tenant who’s breaking the lease for the difference.

Legitimate Reasons for Breaking a Lease

In some cases, you may be legally required to allow your tenant to break the lease without any penalties. Check your state and local laws to learn more about your rights and legal obligations before making a decision. That said, here are some examples of situations where you may want to consider being lenient with your policies:

  • Active Military Status
    Active duty and reserve military personnel can be deployed at a moment’s notice. If they’re transferred a minimum of 50 miles away, military personnel are allowed to break their lease without penalty under the Service Members Civil Relief Act. Depending on your state and local laws, you may also be required to hold the property for them until they return.
  • Job Transfers
    With job transfers, tenants often have no control over where the new job is located. There’s not much reason to try to enforce your lease terms, and if it were to go to court, a judge probably wouldn’t rule in your favor. However, it’s a good idea to add a clause to your lease stating that the contract can be broken for job transfers as long as the transfer is more than 50 miles away. This will avoid issues like a tenant breaking the lease because they’re transferring to a branch across town and want to a rental that’s closer.
  • Job Losses
    If a tenant loses their job and wants to break the lease, it may be best for everyone to just let them move on. If they have no income, it will be difficult to get what you’re owed; it’s better to let them break the lease so you can find someone who’s able to pay rent as soon as possible.
  • Victims of Domestic Violence, Sexual Assault, or Stalking
    Tenants have the legal right to a safe, habitable home—and as the landlord, you’re required to provide that. If the tenant is a victim of domestic abuse or sexual assault perpetrated by a co-tenant, or a victim of stalking, they aren’t in a safe environment and you may be legally required to allow them to break the lease. In some states, like Colorado, you may even be required to provide the tenant with a comparable dwelling or hotel at no cost. Consult with legal counsel to determine the rights of yourself and your tenant, as well as how best to move forward.
  • Personal Reasons
    Sometimes bad things happen to good tenants, like divorce, a death in the family, or illness. Major life changes aren’t always negative, either—maybe your tenant has decided to expand their family and your property isn’t large enough for their new addition. In these circumstances, it’s best to be understanding and allow them to break the lease.
  • Problematic Tenants
    Let’s face it: some tenants are more trouble than they’re worth. They might constantly complain, always be late with the rent, or cause issues with other tenants. If a problematic tenant wants to break their lease, it may be best to let them out of the lease so you can focus on finding a better fit for the property.

Other Options

Lease Assignments

Another option you may want to consider is a lease assignment. This allows tenants to reassign their lease in exchange for terminating the lease early. They essentially transfer their lease and rent obligations to another tenant, then are no longer responsible for paying rent or other tenant obligations. This can be very beneficial because you won’t have to deal with a vacancy, turnover time, or standard move-out procedures. If your lease doesn’t include a clause regarding lease assignment, you may want to consider adding one.

With a lease assignment, the current tenant is responsible for marketing your property and interviewing tenants. You then complete the rental application and tenant screening process with the best candidates. Most state laws require landlords to put in reasonable effort to work with the tenant to find a replacement, so if you choose to offer lease assignments, you must be prepared to complete your tenant screening and rental processes in a timely fashion. Make sure you’re still screening applicants exactly as you would if you would with any other tenant.

When it comes to the security deposit, it’s often easiest to let the two tenants work it out. Often, the new tenant will pay the old tenant the security deposit directly. Check to see if security deposit transfers for lease assignments are legal in your state, however, before adding this process to your rental documents.

Offer a Month to Month Lease

A year-long lease may feel too long for some tenants, particularly if they foresee life changes in their future. One way to work around this and make sure you still receive rental income is to offer to switch them to a month-to-month lease. This offers more flexibility for both parties, as either of you can decide to end the lease with only 30-days’ notice. You do lose some of the stability of a longer lease, but you won’t need to worry about a vacancy—yet. In some cases, your tenant may decide after a time that they don’t want to move after all.

When a Tenant Leaves

Whether a tenant moves because the lease ended or they wanted an early termination, it’s always a good idea to know why. Although you don’t necessarily need full details, you should have an understanding if it’s because of something going on in the tenant’s life or if it has something to do with the way the property was managed or kept up. If the tenant is leaving because of a management or property issue, this is an excellent opportunity to make adjustments to your processes or property. You may even find that these adjustments help with better tenant retention in the future.

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