As a rental provider, you’ll hopefully have a long and fruitful relationship with your renters on an extended, fixed-term lease agreement. Should this not be the case, it’s prudent to be prepared and know what happens if you have renters who want to break their lease early.
In this article, our experts at Dynamic Residential will explain everything rental providers should know regarding their rights, obligations, and the steps to protect their revenue stream.
Understanding Tenancy Agreements
Whether leasing a house, apartment, or even just a spare room, every rental provider needs a tenancy agreement to outline the responsibilities and obligations of all parties involved. This legally binding document sets out the terms upon which renters will be bound after signing, including how much rent is due and when, obligations of both parties to maintain the property in good repair, and, of course, the lease term.
It is important to know that any clauses included in a residential rental agreement must not remove or alter any right or obligation outlined under the Residential Tenancies Act and regulations. Including prohibited clauses can result in a fine to the rental provider and/or agent and will not be enforceable.
Are Renters Allowed to Terminate a Lease Early After Signing a Tenancy Agreement?
Most rental providers would prefer to have the entire lease period fulfilled as stated within the tenancy agreement to avoid unexpected vacancies and minimise the loss of rental income. While most renters will intend to complete the full term of the lease agreement, sometimes unexpected changes in their circumstances will require renters to relocate and break the lease agreement.
The residential tenancies act and regulations does allow for a renter to break a fixed term lease agreement, however there are costs associated that renters will need to compensate rental providers for.
Breaking a Lease: Periodic Tenancy
A periodic tenancy is like a rolling tenancy agreement, where the lease terms run month-by-month. Once a fixed term lease expires, the lease will automatically transition to a periodic tenancy unless the fixed term is renewed, or either party provides notice to vacate.
For a renter on a periodic lease agreement, they are required to provide the rental provider with at least 28 days notice to vacate. As such, a periodic lease cannot be broken as this notice can be provided at any time. For rental providers, there are limited reasons they can provide notice to vacate to renters with varying notice periods. A rental provider cannot ask a renter to vacate for the reason that the renters choose to transition to a periodic lease once the initial fixed term expires.
Breaking a Lease: Fixed-Term Tenancy
Rental Providers often opt for a fixed-term tenancy as it helps secure a revenue stream for an extended period (typically between six months and one year). If a renter needs to break their lease agreement, they will be required to compensate the rental provider for the below costs (unless the rental provider agrees to release the renter from their rental agreement).
- The leasing fee incurred by the rental provider on a pro rata basis. For example, if the renter has completed 6 months of a 12-month lease, then they will be required to compensate the rental provider for 50% of leasing fee incurred.
- The cost incurred by the rental provider to advertise the property to secure a new renter.
- Rental compensation up to the date a new renter occupies the property, or the end of the fixed term lease (whichever comes first).
- Compensation for any variance between the current renters contracted rent and the new renters contracted rent, for the remaining term of the original tenancy.
There is no set notice period for a renter to break their lease agreement, however it is recommended they provide as much notice as possible to allow time to secure a replacement renter and minimise any rental compensation payable.
It is important for rental providers to understand they have an obligation to minimise a renter’s losses when breaking a lease agreement. As such they should not delay beginning the processes to find a replacement renter and ensure they are adjusting the advertised rental in line with enquiry levels and current market conditions.
For rental providers that appoint an agency to rent out & manage their investment property, their property management agency also has a duty to ensure activities are being carried out to achieve the best outcome for the current renter, that is, to help reduce their rental liability. Dynamic Residential’s strong staff resources not only benefit residential rental providers, but also current renters who for unforeseen circumstances needing to break their lease.
Just another way we’ve made a Dynamic change to the rental industry.