Author Topic: Early lease termination policy  (Read 3473 times)

Beaker

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Early lease termination policy
« on: May 12, 2015, 01:39:13 PM »
I'm curious what other landlords' early lease termination policies are. More simply: what do you do when a tenant wants to move out before their lease is over?

Our policy has been that the old tenant would continue paying the lease while we market the property. When a new tenant comes in and starts their lease we refund a prorated amount to the old tenant. It's nice in that you can do zero-vacancy turnovers this way, and if rents are rising you can increase rents more rapidly. The downside is that it's easy for tenants to move, so we end up re-marketing properties more than we otherwise would which is time consuming for us.

We're considering adding in a re-marketing fee for early move outs, perhaps two weeks of rent or something like that. But I wanted to hear about other ideas or experiences with early move outs.

CommonCents

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Re: Early lease termination policy
« Reply #1 on: May 12, 2015, 01:57:41 PM »
Legally, you are generally obligated to take no more than the cost of covering.  This means you can take money out of the deposit for your costs in marketing the property and any time it sits empty.  You cannot deliberately let it sit empty though - you have an obligation to try to rectify the situation.  And, you can't "punish" the person breaking the contract with extra fees that aren't related to your costs.
« Last Edit: May 12, 2015, 02:34:50 PM by CommonCents »

thd7t

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Re: Early lease termination policy
« Reply #2 on: May 12, 2015, 02:18:08 PM »
I've only broken a lease once, but in advance, I asked the landlord if it would be acceptable if I found a new tenant.  The new tenant had to go through the landlord's application and was accepted.  Seems like offering this method would be a winner for both sides.

Beaker

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Re: Early lease termination policy
« Reply #3 on: May 12, 2015, 02:18:24 PM »
Legally, you are generally obligated to take no more than the cost of covering.  This means you can take money out of the deposit for your costs in marketing the property and any time it sits empty.  You cannot deliberately let it sit empty though - you have an obligation to try to rectify the situation. And, you can "punish" the person breaking the contract with extra fees that aren't related to your costs.

Hm, interesting. But could you call it a property management cost? I've seen a number of property managers that charge fees for marketing a property to cover their time in showings and whatnot. Presumably we could do the same, despite managing our own properties?

BTW, I assume you meant to say "can't 'punish'" in the last sentence.

CommonCents

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Re: Early lease termination policy
« Reply #4 on: May 12, 2015, 02:34:36 PM »
Legally, you are generally obligated to take no more than the cost of covering.  This means you can take money out of the deposit for your costs in marketing the property and any time it sits empty.  You cannot deliberately let it sit empty though - you have an obligation to try to rectify the situation. And, you can "punish" the person breaking the contract with extra fees that aren't related to your costs.

Hm, interesting. But could you call it a property management cost? I've seen a number of property managers that charge fees for marketing a property to cover their time in showings and whatnot. Presumably we could do the same, despite managing our own properties?

BTW, I assume you meant to say "can't 'punish'" in the last sentence.

Yes, I did.  :)
Yes, costs can include fees to post an ad and your time.

Beaker

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Re: Early lease termination policy
« Reply #5 on: May 12, 2015, 02:39:32 PM »
I've only broken a lease once, but in advance, I asked the landlord if it would be acceptable if I found a new tenant.  The new tenant had to go through the landlord's application and was accepted.  Seems like offering this method would be a winner for both sides.

I see where you're coming from, but I prefer to re-market myself. I've got all the photos and ad copy ready to go, and I think I do a better job of it. Plus I haven't looked into any legal issues surrounding that - eg, if the tenant was in some way discriminatory in the process, would I potentially be liable for that? Maybe not, and I don't think my tenants are like that, but I just don't know.

zephyr911

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Re: Early lease termination policy
« Reply #6 on: May 12, 2015, 03:06:40 PM »
My theory: a tenant who's not happy is a bad tenant, so I want them to be able to leave. But turnover sucks, and unannounced turnover is the worst, so I want them to give me time to plan.

I normally let them break any lease with 30 days notice, so if I get notice mid-month, I prorate the next month out and deduct that from the deposit along with any damages. So if rent is $500 and they give notice mid-month to leave at the end of the month, $250 comes off the deposit.

NoNonsenseLandlord

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Re: Early lease termination policy
« Reply #7 on: May 12, 2015, 03:24:19 PM »
Here is what I have in my lease.  It cost money to advertise, show, sign new leases, pay managers to get tenants, etc.  I charge at least two weeks rent, even if I fill the unit without losing any rent.  I want plenty of time to turn a unit and not have to do it on my dime.  The tenants are obligated for the full lease, although no judge would likely ever give it to you.

I have received two month's rent once, for a corporate transfer.  It is not rent, it is a fee.  The relocating company paid it without a problem, as it was in the lease.




55. MINIMUM CHARGES FOR REPAIRS _______________ (Initials)
There will be a minimum charge for damages that are not repaired by RESIDENT before last day of lease.  Actual charges may exceed these minimum charges.  Broken Windows $150 ea; Range cleaning $200 ea.; Refrigerator cleaning $100 ea.; Burned out bulbs $5 ea;  Torn Shades $20 ea;  General apt. Cleaning $550;  Clogged toilets, $125; Carpet cleaning, $200; Missing keys, $5 ea; Broken mini-blinds $25; Broken vertical-blinds $50; Couch/Loveseat removal $75; Mattress/Box spring removal $40 each piece; Nuisance calls, $50; Maintenance/repair labor $75.00 per hour; Cleaning labor, $40.00 per hr.  On-site Storage, $250 per month. Lease termination fee, 2 months’ rent; lease re-marketing fee for early move outs $50% of one month’s rent.  Extra occupants, if approved, $50 minimum per month.

Fishingmn

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Re: Early lease termination policy
« Reply #8 on: May 13, 2015, 06:21:37 AM »
I recently increased my lease break fee from $300 to $500. Tenant is still liable for rent until I can get it re-rented. I've had 2 tenants pay the $300 fee without complaint and was able to find a new tenant in short order with no vacancy.

There is a significant cost in terms of time and effort to find a new tenant and do an early move out/move in so I feel it is easily justified. I know of some larger landlords that charge much more than $500.

CommonCents

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Re: Early lease termination policy
« Reply #9 on: May 13, 2015, 07:54:31 AM »
The tenants are obligated for the full lease, although no judge would likely ever give it to you.

Contract law permits people to break their agreement as long as the breaching party covers the cost of doing so for the other party.  As I stated above, the "innocent" party has an obligation to mitigate damages by seeking someone else to take their goods/lease up.  Contract law permits efficiencies (i.e. breaking a contract to make more money elsewhere even after covering the damages).  I did a google search and found this blog article which explains it reasonably well:

http://www.douglasturner.com/2011/01/27/colorado-contracts-and-the-mitigation-of-damages-rule/

bacchi

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Re: Early lease termination policy
« Reply #10 on: May 13, 2015, 02:30:55 PM »
The tenants are obligated for the full lease, although no judge would likely ever give it to you.

Contract law permits people to break their agreement as long as the breaching party covers the cost of doing so for the other party.  As I stated above, the "innocent" party has an obligation to mitigate damages by seeking someone else to take their goods/lease up.  Contract law permits efficiencies (i.e. breaking a contract to make more money elsewhere even after covering the damages).  I did a google search and found this blog article which explains it reasonably well:

http://www.douglasturner.com/2011/01/27/colorado-contracts-and-the-mitigation-of-damages-rule/

Yep. I've been granted the remainder of a lease from tenants who broke a contract. The rental market was depressed and it was really hard to fill.