Sooner or later, you’re going to get the dreaded notice from your tenant that they have to break the lease. No matter how much you prepare, it’s usually not fun to stop down and turnover a rental unit ahead of schedule.
But there are some things you can do to minimize the pain, both before you even sign with the tenant and after you find out they are breaking the lease. Let’s explore this topic together…be sure to leave your helpful comments below.
My tenant (my first and only) recently broke his lease. He was 20 months into a 24 month lease. Overall, the lease-break experience was positive because of a strong local rental market, good timing, and solid communication from my tenant, starting on the day we first made contact.
That’s What Your Lease Agreement is For
One of the biggest reasons you should always have a solid lease agreement with your tenants is so that you can both know what to expect when the lease is broken. Most leases will have an abandonment clause that outlines what happens when the tenant leaves.
In most cases, the remedy is going to allow you as the landlord to be made whole (i.e. collect from the tenant the loss in rental income). So when your tenant lets you know they are leaving early, you should immediately remind them of this clause and tell them you will be holding their security deposit until you can relet the unit.
- If you can rent it out immediately, they will get their deposit back less damages or other fees outlined by your agreement.
- If it takes more than a month to relet the unit, the security deposit (if one month’s rent) is now yours and you’ll be billing them for more unpaid rent.
If the tenant just up and leaves and you end up incurring a loss because you can’t relet the unit, then you’ll need to pursue payment from your old tenant. Here’a smart guide from SFGate to help you out with that situation.
Backing up a bit, when you are in the tenant screening process you should make this clear to the potential tenant. You should also clearly communicate it at the lease signing. Doing so will usually help to manage expectations on both ends.
For instance, my tenant let me know he was “trying out the area” and there was a strong likelihood he would not make it the entire 24 months. He was concerned about what would happen if he broke the lease. I informed him of the abandonment clause and I gave him a sense of how quickly I thought I could turn over the property.
Throughout the lease, he let me know at different times there was a chance he would either lose his job or move. The final, official notice came this April. He let me know he was moving out in early May due to a job change.
The Importance of an In-Demand Rental Location
At no time is the need for your property to be in-demand more obvious than when a tenant breaks a lease. It’s not that challenging to predict relative demand for a property.
Sure some things can change through the years, but if an area is trending up in terms of demand then you’re going to be much better off when the lease is broken. Find properties in areas that are on the up and up.
Consider the Circumstances (Including the Upside!)
Keep in mind that some of the best tenants in the world could break a lease. There are perfectly legitimate reasons to move out early: a job change, extended unemployment, divorce, etc. Life happens. I’m a believer that you can have very positive rental experiences even in the midst of lease breakages. And you should expect breakages.
When my tenant let me know about his early departure I was certainly disappointed. But I was more thankful for the great time I had enjoyed for 20 months with this tenant. He kept the place clean, he always paid on time and over-communicated, and he was a pleasant, respectable person to work with.
On top of that, and the big win here is that I was able to raise the rent when he left! I raised the rent by $100 a month. That’s $400 more I’ll make on my real estate investment this year because my tenant broke the lease. I couldn’t be happier about this part to say the least.
Demand a Normal Exit, Even if Early
Even though your tenant is leaving early it doesn’t mean you should throw the baby out with the bath water. The rest of the turnover process should go according to plan. Your tenant should…
- be responsible for the 30 days notice,
- allow you to show the property to prospective tenants or to come in and make repairs,
- clean the property and leave it in good working order, and
- turn in all keys, etc.
Basically, nothing else should be affected by the lease breakage. Act professionally and expect that your tenant will do the same.
Start Prepping for a New Tenant Immediately
Last but not least, begin the on-boarding process ASAP. List the property for rent, start screening tenants, arrange showings, inspect the property (not final inspection – save that for move out day) and coordinate repairs. Do everything you can to get your place rented as soon as your current tenant leaves.
How I showed the property: I decided to create a couple of “open house” days on the two middle weekends in April. Thanks to a strong local market and the beginnings of the strong turnover months (April thru June), I was able to narrow down my ideal tenant and get a holding deposit after just one showing. This allowed me to cancel the second open house. Woot!
The Bottom Line
Remember, it’s not the end of the world when your tenant moves out early. At worst, you should be able to be made whole by following the agreement. At best, it could mean a smooth transition, a better tenant, and an even higher rent.
What advice do you have for other landlords regarding lease breakages?