Lease Breaks – A guide for landlords
Having a tenant break their lease can be quite stressful for landlords – but it’s not all bad news.
The first thing to note is, that it’s probably also quite a stressful time for the tenants. Chances are they had always planned to see out their full lease term but things can happen and situations can change in people’s lives.
The most common reasons tenants break their lease are:
- Relationship break ups
- Family expansion (kids, family member moving in etc)
- Job loss
- Buying a house
- Relocating interstate/overseas
The Residential Tenancies Act is clear about the rights and responsibilities of tenants and landlords when a tenancy ends before the lease expires.
Although there is no specific “Lease Break” fee outlined in the Act, as a landlord you are entitled to seek compensation for any financial loss you suffer by the tenant ending their lease early. The compensation you may seek is outlined as follows:
- Rent – Your tenant is responsible to continue paying their rent until a new suitable tenant is found and begins their lease.
- Advertising – Because you will need to re-advertise your property, you are entitled to seek compensation for your advertising costs.
- Pro Rata Letting Fee – If you engaged a Property Manager to lease your property, they will charge a fee for their service. Your tenant is responsible to pay a pro-rata amount of the letting fee charged by your agent. It’s calculated based on the time left on the lease. Eg: If your tenant is on a 12 month lease and breaks their lease after 8 months, they would be responsible to pay 4 months of the leasing fee.
Pro rata letting fee
If you own a rental property or you’re working with a property management company, understanding how pro rata letting fees work can help you better grasp your potential expenses and how your property manager is compensated.
Whether your leasing the property yourself or through an agency, it’s vital that all fee’s and charges are clearly outlined in the original lease agreement. This will avoid any uncomfortable situations should a lease break occurs.
The Act also states that as a landlord, you must try and minimise any rental loss the tenant is facing. Here’s a quick guide for you to ensure you don’t have the tenants taking action against you for taking too long to lease the property.
- Re-advertise the property as quickly as possible
- Increasing the rent is frowned upon by VCAT members, even if it’s towards the end of the lease period. This can be seen as you trying to take advantage of the situation.
- Hold regular open for inspections and make sure you keep all dates/times on file
- Do not feel forced to approve an applicant you are not happy with. Although you are required to try find a new tenant as quickly as possible, you still have the right to find a tenant who you are happy with and meets your standards. To protect yourself, it’s important that you keep all applications and notes as to why they were not approved.
- You should look at the lease break as any other vacancy in terms of reducing the price if its taking too long to lease. If you have to reduce the price, you should negotiate for the tenants to pay the difference between any reduced rate for the remainder of their lease. It may make better financial sense for them to pay $10/$20pw for a couple of months instead of the full rent for a few weeks.
Keep these in mind if your tenants break their lease. You may not be able to make them stay to the end of the lease but understanding your rights and responsibilities will make sure the tenancy ends smoothly and you’re not out of pocket.