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Real estate investing

How to handle (and prevent) early lease termination

Early lease termination occurs with some regularity, so it’s essential that property owners prepare for the eventuality. In many cases, steps can be taken to prevent early termination. 

Here are some tips.

Reasons for early termination

Depending on the state and locality, there are some circumstances in which tenants are allowed to formally break the lease without any rent obligation after the notice period. This may include:

1. Active military duty

According to the War and National Service Members Civil Relief Act, tenants are permitted to break their lease early if they are called to active military duty. 

In such cases, tenants have to give 30 days notice of early termination, after which they are not obligated to make any more rent payments. 

This includes the following:

  • National Guard
  • Public Health Service
  • NOAA Corps
  • Armed forces more than 50 miles away

2. Breaking a month-to-month lease

The amount of notice that a tenant has to give to break a month-to-month lease depends on local laws. 

3. Divorce, illness, or job transfer

Surprise life events such as serious illness, divorce, or non-negotiable job transfer are all causes of early termination requests. 

In these cases, allowing early termination can save you more time and money than eviction. If accommodations are not provided in these circumstances, then the tenants may take their frustration out on your property or reputation.

If you permit early termination, then the tenants will probably be obligated to pay the rent while the property is vacant. During this time, you are legally required to actively look for new tenants

4. Domestic violence

People subjected to domestic violence, stalking, abuse, or sexual assault are permitted to break their lease early so long as they have the necessary paperwork. After providing the early termination notice, the tenant will not be required to pay any rent after 14 days.

5. Intrusion of privacy

In most states, tenants are guaranteed 24 to 48 hours notice before a landlord or property manager enters their property. This, however, is a common lease violation

If the tenants’ right to privacy is violated repeatedly, the tenant could report a code violation or sue, resulting in withheld rent, early lease agreement termination, or financial penalties.

6. Lease agreement violations

Leases can also be terminated early if the tenant violates any parts of the lease agreement. 

The most common reason is the failure to pay rent, which makes knowing how to evict a tenant who doesn’t pay rent necessary skills for a property manager.

 Other reasons include:

  • Unauthorized pets.
  • Letting someone move in without permission.
  • Noise problems.
  • Intentionally damaging property.

7. Loss of employment

If your tenant is unable to pay their rent because of reduced hours, wages, or layoffs, it may be easier to allow them to terminate their lease early rather than going through the motions of an eviction. 

Although, it’s essential to follow all legal stipulations if considering an eviction in a time when there are eviction moratoriums, such as during the coronavirus pandemic when the CDC eviction moratorium and California AB 3088 disallowed evictions. Otherwise, consider an early termination fee to balance out some of your income loss and let your tenant break the lease. 

Two month’s worth of rent is typical for a fee.

8. Uninhabitable rental property

An implied right of habitability is one of the things required of property management by law. It means that tenants are guaranteed the right to a livable space. Depending on the state, if this right is violated, the tenant may break the lease with zero responsibility to pay any remaining rent. 

This usually happens if a significant issue goes unaddressed, like no electricity, gas, plumbing, leaks in the roofs or walls, or health hazards. To make sure this doesn’t happen, never falter in your maintenance and diligently document all mitigating measures and repairs. 

How to mitigate the impact of early lease termination

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1. Review the lease with the tenant

Tenants often don’t read over their leases closely or know house rules concerning serious matters like fire prevention. It is a good idea to review the lease with tenants to be sure they are familiar with it. 

2. Find a new tenant

It’s the onus of the landlord to find a new tenant, and all applicants should go through the same rigorous screening process

As soon as possible, finalize the early termination and prepare a lease for the new tenant to reduce the vacancy period. 

3. Include a termination clause in the lease

Include an early termination of lease clause in the lease agreement to ensure a smooth process. Outline these important points:

  • Minimum notice
  • Early termination fees
  • Written notice requirements
  • And more 

4. Require a termination of lease agreement

Have a tenant provide a written and signed notice of early termination. Before the tenant leaves, make sure all payments have been finalized.

5. Offer a buy-out

Landlords can keep charging rent in some circumstances until a replacement tenant is found. The current tenant might find it appealing to pay a non-refundable fee known as a “buy-out” that allows them to terminate the lease and move out.

Since an early termination fee is usually two months, a tenant who has more than two months left on the lease might find this deal appealing. 

If a property owner finds a new resident in less than two months, it is not necessary to refund the vacating tenant a prorated amount for the overlapping time. Simultaneously, if the resident search takes more than two months, the owner is not entitled to additional funds. 

A buy-out option is also a good way to avoid having to take a tenant to court for unpaid rent. 

6. Do not use a security deposit to cover rent

The security deposit should not be put toward the rent in an early termination. Inspect the property to to see if it needs to be put toward repairs. 

Bottom Line

An experienced property management company like Mynd can be of help for situations like an early lease termination.

Even following all the tips for easy rental tenant turnover management may not be sufficient, as there many factors to take into consideration.

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