If your tenant is breaking their lease early it can be both a logistical headache and a financial burden. You now have an unexpected vacancy you must try and fill in a short amount of time.
Step one: Don't panic!
Tenants' circumstances might change, which warrants them to want to break the lease early. It's not an easy situation, but you need to treat your property like a business and not leave yourself exposed unnecessarily.
Luckily, there are ways to reduce rental lease costs and expenses you can claim and steps you can take to reduce the financial impact of a tenant breaking lease.
We have put together a guide for you to stay informed on your legal rights, obligations, and how to reduce the risk of money being lost in the event your tenant wants to break their lease early.
Can tenants break a lease early?
Yes, tenants can break a lease early, but only with written consent from their landlord, with some exceptions.
So, if you choose to provide your consent and agree to terminate the tenancy early, that is perfectly legal and valid.
Depending on whether the rental lease agreement is fixed-term or periodic, the period of notice the tenant has to give changes.
Ending a periodic tenancy
Unlike a standard rental contract, a periodic tenancy (a.k.a. a rolling contract) is a lease agreement that typically runs on a month-by-month basis with no specific end date, which is how one-fifth of Australian tenants choose to rent.
The point of this contract is basically that it gives more flexibility. So the standard rules of breaking a lease don't apply here.
The tenant will only have to give as little as 14 days' notice to vacate the property if you're using a periodic tenancy. Once this notice has expired, the tenant lease agreement ends.
You can't reasonably keep the tenant from moving out if you're using this contract, but you probably expected that.
Ending a fixed term tenancy
This is likely the type of contract you've signed with your tenant. You use it hoping you'll have secured a stable source of income for the whole duration of the lease, usually 6 months or 1 year.
Understandably it’s a bit of a shock when a tenant then turns around and says they want to break the agreement.
This is when questions arise about whether or not tenants can break it, what the notice period is, if you can refuse, and what your rights are. Unfortunately, the legislation differs a bit from state to state, but we'll give you the full rundown.
Just know that as you're reading the rest of the article, this is the type of tenancy agreement we're assuming you have signed.
What should you do if your tenant wants to break the lease early?
First and foremost, the most important step is to figure out why your tenant wants to leave. Whether or not you could (or should) deny them from breaking the lease will depend on their reason for wanting to do so.
Plus, you might find that it's just because of an unresolved issue, and you get a chance to save the tenancy as a whole.
Their reasoning can vary from “I just don’t like it here anymore” to “I’ve been made redundant and can’t afford rent anymore”. It may even be as simple as a maintenance issue you can help with.
People tend to like it when you go out of your way to solve their problems, so if it is a simple fix, this can not only avoid a tenant breaking lease early but can result in a happy tenant and long-term tenancy.
However, if it is not a simple fix, the next steps would be to:
- Check your tenancy agreement to verify how well you are covered (and what obligations your tenant must uphold)
- Notify your property manager as soon as possible
- Check your state legislation
The final step is probably the most important one.
We'd love to give you all the answers, but all the Australian states have different legislation, names for things and definitions, so it would be too confusing for us to try and explain it all here. In some states, you can collect early termination or penalty fees from tenants, while in others they can't be penalised for breaking the lease.
You can check your local state's legislation using the links below. Pay attention to what your state legislature says about breaking a lease, notice periods, rental loss, and conditions for withholding consent as a landlord.
- Australian Capital Territory
- New South Wales
- Northern Territory
- South Australia
- Western Australia
So, while we can't give you all the details, we'll now let you know some of your options and general legislation to be aware of.
What are your options and what can you do to protect yourself?
There are two courses of action you can take:
- You can go down the route of refusing to terminate the lease agreement. The tenant signed on for a year, so you demand that they pay the rent in full. If the tenant wants to break the lease for something that's not reasonable, like "I want a bigger home", then it's in your full right to withhold consent.
- Or come to some sort of mutual agreement with compromises on both sides. A mutual agreement between both you and your tenant can save you a world of hassle or any legal battles further down the line.
And although there is no set fee for your tenant breaking the lease, legally speaking, you are entitled to not be out of pocket, so great news – there are a few costs you can claim, including:
- Reasonable re-advertising costs
- A re-letting fee (usually one or two weeks’ rent)
- Rent until you can find new tenants, or the current agreement ends (whichever comes first)
That being said, in unfortunate circumstances where tenants are suffering from domestic or family violence and/or abuse, you must let them break the lease to leave an unsafe situation without any repercussions. This is more of a legal thing, though, and you wouldn't have to deal with this situation on your own, as the police would usually be involved at that point.
Whether leasing a property to a company or a family, as a landlord, you are obligated to provide a safe and habitable environment for your tenants to live in. If the rental property poses any health or safety hazards, tenants are legally allowed to break the lease early without paying any compensation.
If your tenant wants to get out of paying rent or any compensation, be prepared for them to present false claims declaring an unsafe or inhabitable environment.
When should you let the tenant go?
There are plenty of circumstances where it can be easier and maybe even more cost-effective to just let your tenant go.
Although the last thing you want to do is have to restart the process of finding a good tenant again, you should consider what it means for your rental property's future if you decide to refuse your tenant to break the lease.
At the end of the day, you want the person living in your rental property to care about it. If you refuse your tenant's wish to break the lease, you're left with an unhappy tenant who doesn't care about the wellbeing of your rental property.
This poses some risks for you and your investment property.
- They might refuse to pay rent altogether. While you can solve this by going to the Tribunal, it's a costly move that can be a big source of stress for you.
- Your property might be damaged. Since they're looking to get out as soon as possible, your tenant might stop reporting maintenance issues or treat the property without care.
Now if you've asked the tenant why they want to break the lease, you can decide if it's beneficial for you to let them go after all.
- If the tenant has been perfectly reasonable for a long time and they have a replacement tenant that they want to introduce you to, we think it's wise of you to hear them out. There are risks to subletting, but it's better than suffering a vacancy.
- If you can reach a compromise with the tenant where you agree on a specific date as well as some additional terms, like the tenant having to cover marketing costs, then there's nothing really wrong with letting the tenant go and finding a new, long-term tenant instead.
The bottom line here is, it isn't always wise to make your tenants stay even if you can. But, you can remind your tenants of their legal obligations if they want to break a lease, and hold them financially accountable until you find a new tenant. After all, that's why we collect a bond.
This is where a rock-solid lease agreement will help you out, as well as an entry condition report.
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