Infolio

Implications of breaking a lease

12 December, 2014 / Category: Blog

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Breaking a lease is not a decision that should be taken lightly. Still, sometimes life just happens, causing us to reassess our living situation. Whether it’s for job transfer, or due to a bad relationship with your landlord, there are situations in which a lease break may be your only option. Motivations aside, it’s important to remember that breaking your lease can be a complicated (and costly) process. Infolio are here to tell you why.

A lease is a contract by which one party conveys land, property, or services to another for a specified period of time, usually in return for a periodic payment. When it comes to property, a lease cannot be broken without a cost to the person who has chosen to break the contract, in most cases the tenant. In these instances, a landlord or agent is well within their rights to pass on any costs reasonably associated with the tenant’s decision to disrupt the agreement. These costs will vary depending on the landlord, the tenant, and the specific situation.

General costs associated with breaking a lease

If a tenant makes the decision to break their lease, regardless of the reason, general costs incurred could include:

  • Rent until a new tenant moves into the property
  • A pro rata letting fee based on the unexpired portion of the lease. E.g. if the rent is $400pw/$1738 per calendar month and there is 6 months remaining on the lease, then the letting fee would be based on a percentage of $10, 428. By law, the percentage charged could only be what the tenant pays to the landlord as per the authority.
  • Advertising costs—this may include (but is not limited to) Internet advertising, a ‘For Lease’ board, and priority listings on real estate portals.

Additional costs that may be associated with breaking a lease 

Depending on the situation, a tenant who chooses to break their lease could also incur additional costs as a result of their decision. These could include:

  • Condition report photographs
  • Tenancy credit checks

Basically, if the agent has an agreement where they’re entitled to charge the landlord, these costs can then be passed onto the tenant who is breaking the lease—provided the costs are required to achieve the desired result. In some cases, the tenant breaking the lease may claim that they are happy to pay for advertising, but will not cover costs for a ‘For Lease’ board. This choice is within reason, providing that the tenant understands it could mean the property is vacant for longer. Transparency is very important.

The largest cost

When a lease is broken, the largest cost is (usually) the tenant’s obligation to continue paying rent until another occupant is found. Considering that the tenant who has broken the lease has generally rented or purchased another home, they will generally be making payments on two properties at once. This can make a significant dent in a person’s weekly income. With the average time to lease a property being six weeks, the process can be costly. As such, it would be wiser to break a lease when you have up to six weeks before you are required to pay dues elsewhere. However, this is not always possible.

Keep the property presented well

It’s incredibly important that the tenant who is breaking the lease keeps the property well presented, and offers the agent ease of access to bring through potential occupants. To make inspections simpler, the tenant should ensure the agency have duplicate keys so they don’t have to be present, or on call. Depending on the agent’s schedule, viewings could be by private appointment during the week, or open for inspections on weekends. Keeping the home in a neat and tidy fashion increases the chances of finding a new occupant, meaning less cost for the current tenant, and less stress for the landlord.

Keep communication open

In situations where a lease has been broken, it is important to ensure you communicate with your agent regularly, and understand they will do their best to achieve an outcome quickly. However, in instances where a property is vacant, finding a new tenant could take longer than expected. If this is the case, it is important to remain calm and understanding. Anger, aggression and threatening language will not help you to achieve a desired result.

Where it is in the tenant’s best interest to remain patient, it is the agent’s responsibility to act in a timely fashion. When trying to find a new occupant after a break of lease, the agent should treat the situation with the same urgency as they would if the home was on the market by normal means.

Sometimes, in a bid to speed up the process, current tenants may wish to introduce replacement occupants to their agent or landlord. This is a perfectly acceptable practice, however, the agent or landlord is not obliged to approve the suggested replacement, nor can they be unreasonably rejected.

Regardless of the circumstances that surround the break of lease, it is vitally important that the tenant cooperates with the agent throughout the process, remembering that they are the one that broke the agreement. Similarly, the landlord should retain their responsibility to act quickly and diligently, to minimize the tenant’s overall costs.

A break of lease is never easy, but if both parties remain cooperative a lot of time and money can be saved.

Sincerely yours,

Infolio

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