Three Things To Know When A Tenant Breaks a Lease

When a tenant breaks a lease months before it expires, it usually means more headaches for the landlord. But there are some things you can do to limit your losses and make the best of this situation. In fact, depending on your individual circumstances, it may even be a good thing. Here are three things that you should consider.

If your unit is rented at below market rent, this could be a great time to raise rent and improve cash flow

This situation usually applies to long term tenants who’ve been in your property for years and you haven’t raised their rent in a long time (if ever). If you have long term tenants who are breaking their lease, do a little research to find out what current comparable rents are. Their early departure may not be such a bad thing for your cash flow situation.

Negotiate with your tenant to have them pay a portion of the remaining rent due

In many states you are entitled to sue your tenant for lost rent for the remainder of the broken lease (except in certain circumstances like military deployment). Use this fact to your advantage and tell your tenant that you will release them from their lease if they agree to pay for a portion of the remaining rent. For instance, if their lease expires three months from the time they are moving out, you may put into writing that you will terminate their lease early if they pay for 1/2 months rent. The advantage to them is that they don’t have to worry about you potentially suing them for lost rents and they can rely on you for a good recommendation to future landlords. The advantage to you is that you have a longer window to find a new tenant without losing money on the property.

Most states require the landlord to mitigate the losses the former tenant is liable for

What this means is that you cannot just wait until their lease would have expired – without trying to re-lease the property – and then sue your former tenant for all of that back rent. So, once your tenant moves out, even if they broke their lease three months into the agreement, you are required to actively try to lease your property. This doesn’t mean that you have to take any tenant who applies or that you must accept below market rent, but you must try to get the place leased. Of course, this law just makes sense, because even in a state where you may be under no obligation to try to re-lease your property, most landlords can’t afford to sit around and not collect rent. Furthermore, taking a former tenant to court for money that they may never be able to pay you is an expensive undertaking best avoided.

So, if you have a tenant who has broken their lease, consider whether they’ve been renting at a below market price. If yes, then great, go rent out your place for more money. If not, try to negotiate with your tenant, offering a written agreement to end the lease and a solid recommendation in exchange for a partial payment of the remaining rent due. Lastly, whether or not this can be accomplished, accept the fact that from time to time, tenants will break leases and that you just need to buck up, put out a for rent sign and start marketing your property for rent again. It’s just part of the cost of doing business.

Until my next post,

James

P.S. For a limited time, we are offering the Secret Property Management Tips and Tricks as a free download.

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