Breaking lease

rental agreement

It’s great having a rental property, you have no long term financial commitment and you can move up and down the market quite easy depending on your income, needs and wants. But is important to remember, you do have a commitment for a certain term, the term of the lease.

I’m not too sure when they stopped writing leases on the back of a cigarette boxes however in my time in Property Management a lease has always been a formal, legally binding document. Some tenants do seem to forget this. Or, in some instances I must admit, are not adequately informed by the landlord or property manager.

The lease is a legally binding document and every part of the lease can be legally enforced. This means that if you agree a lease at $400.00 per week for a 12 month period then you are legally required to pay $400.00 per week for 52 weeks. That does not mean that in some circumstances where you cannot remain in the property that the landlord is going to expect you to continue to stay (well not our landlords anyway) there are ways around this. In the event of a tenant having to vacate the property this means the term of the lease has been broken and it is referred to as a break lease situation. The effects on a tenant vary depending on the landlord and situation however it is important to know the implications for the property you are renting. It would be beneficial to seek an explanation of the implications in writing from your agent/landlord before you make any decision whether or not you wish to leave.

Below is a scenario and example of a break lease situation and what a tenant may be liable to pay.

Steve, a self‐employed handyman moved into a property on a 12 month lease at $400.00 per week. Unfortunately 12 weeks into the lease Steve was injured and therefore not able to work for a while. He thought it then best to leave the property and live with a friend until his injury healed. His agent gave him a clear indication on what he was liable to pay for whilst they advertised for a new tenant. An example is below:

  • All rent on the property until a new tenant is found
  • Advertising costs
  • Any shortfall in rent from a new tenant for the remaining period of the lease
  • A % portion of the leasing fee which the owner must cover
  • Continual upkeep of the property until a new tenancy is secured

These are some of the most common costs a tenant would be responsible for however there may be more. Let’s see how Steve’s situation works out. His agent markets and they have a new tenant to move in 3 weeks’ time at $380.00 per week. This means Steve is responsible for $400.00 per week for 3 weeks in the interim. Steve is also responsible for an additional $20.00 per week for 37 weeks (52‐12‐3) which works out at $740.00. The new owner pays $520.00 leasing fee ($10.00 per week) and therefore Steve has to pay 37 weeks’ worth (370.00). The advertising costs were $200.00. This is a total of $2,510 Steve must pay.

In this situation this is just over 6 weeks rent which is significantly less than Steve would have to pay if he remained in the property. It is important to know the exact implications of your situation. It might be the case that it is cheaper to carry out the remaining term of your lease as opposed to breaking lease. The costs vary considerably depending on how long it takes to re‐let the property.

It should also be noted that the owner is only obliged to offer the property for to the same end date of the current lease. For example; if there is 8 months left on the your lease and a prospective tenant wants to apply only if a 12 month lease is available, the owner is under no obligation to rent the property past the end date of your lease. The owner may have plans after this time that may not suit a longer lease and is therefore entitled to choose a tenant suitable to these.