Early Lease Termination
Both landlord and tenant are bound to the contract terms of the lease agreement that includes the tenant obligation to pay tent and the landlord obligation to provide habitable premises and ensure the tenant’s right to quiet enjoyment of the premises. Early termination of the lease agreement breaks the contract terms and conditions of the lease.
Breaking the lease isn’t always a simple matter. Depending on the lease terms and conditions, applicable state statutes, remaining term length of the lease and circumstances of the matter, it takes careful consideration of all issues to end the landlord-tenant relationship in a legally compliant manner.
Early termination of the lease contract can be requested by landlord or tenant as a personal or business necessity.
As business necessity, a landlord may need to consider early termination of lease for legal reasons such as:
- tenant material violation of lease terms and conditions – e.g., rent defaults, property damage, or tenant illegal activities;
- lease terms and conditions specifically allowing the landlord to terminate the lease before the contact ending date.
To terminate a lease, landlords must follow the statute requirements of the state where the rental property is located. While each state may vary in requirements for lease termination, commonly, statutes require landlords to notify tenants of the intent to terminate a tenancy. Some states allow tenants the opportunity to cure a lease violation before the landlord can take further action for lease termination while other states allow a landlord to terminate a tenancy without giving the tenant a second chance to cure the violation. Notices commonly used for notification of intent to terminate a lease are pay or quit notices applicable for rent defaults, cure or quit notices applicable for other types of lease violations, or unconditional quit notices which require the tenant to quit the premises immediately without opportunity to cure the default. If the tenant fails to comply with notice requirements the landlord can initiate legal action to evict the tenant.
There can be other reasons a landlord may consider early termination of a lease, such as the sale of the rental property; the landlord’s intent to occupy the rental property as his personal residence, or extensive repair/remodel work to the rental unit that requires the unit to be vacant. For reasons listed above the landlord will need to work with the current tenant to negotiate an agreement for an early release date from lease obligations.
State statutes provide protection for tenants who have legitimate reason to request early termination of their lease. In some states landlord-tenant statutes allow a tenant to terminate a tenancy before the end of term without landlord permission for reasons such as:
- Military Duty – A tenant who is a member of the armed forces, or that tenant’s spouse or dependent, who delivers copies of reassignment or deployment orders to the landlord within the required number of days of receipt of orders.
- Domestic Violence – A tenant who is a victim of domestic violence, sexual assault, unlawful harassment or stalking, and who has a legal protection order or has reported the incident to the authorities.
- Harassment – A landlord or landlord’s agent violates the tenant’s right to privacy and quiet enjoyment of the property by stalking, sexual assault or unlawful harassment of the tenant.
- Habitability Issues – As a remedy to the landlord’s failure to maintain fit and habitable housing resulting in constructive eviction of the tenant.
- Property Damage – The rental property is significantly damaged or destroyed by natural disaster or other reasons beyond the tenant’s control.
- Violation of Privacy Rights to Quiet Enjoyment of the Premises – Intrusiveness of the landlord that violates tenant privacy, such as landlord entry to unit without tenant notification.
In a few states landlord-tenant statutes allow for early termination of tenancy for reasons such as tenant health problems, or tenant need to move to assisted living facilities or elder housing.
However, the most common tenant reasons for requesting early termination of the lease are personal matters such job transfer/relocation, job loss, divorce, serious illness, buying a home, moving in with family member, partner/roommate, other life events or changes in in lifestyle. In most states these reasons are not considered legitimate reasons for early termination of a lease. A landlord should be knowledgeable of the requirements of his state statutes for permissible reasons for termination of lease, notifications of lease default, intent to terminate a lease, and required procedures to terminate a tenancy.
Once the landlord has received notification of the tenant’s intent to early terminate his lease, the landlord should confirm the circumstances regarding tenant’s need to break his lease. The landlord has certain responsibilities to proceed in a legally compliant manner for early lease termination. The tenant should be reminded of his contract obligation for continued rent responsibility under the lease agreement terms. This means the tenant will owe the landlord rent until a new tenant can be found to fill the vacancy. However, the majority of states have statutory requirements or case law that hold the landlord responsible to make reasonable efforts to find a replacement tenant suitable under the landlord’s rental standards. This landlord obligation to actively find a replacement tenant is required regardless of the reason why the tenant has chosen to break his lease. The landlord has the duty to mitigate damages to the current tenant to help reduce the amount of rent that the departing tenant owes under the lease terms. The tenant will be financially responsible for rent payments up until a lease is signed by a new tenant. A landlord’s lease agreement cannot include a clause that waives the landlord’s duty to mitigate damages. While the landlord’s duty to mitigate includes trying to re-rent the unit as quickly as possible, a landlord does not have to prioritize filling this vacancy ahead of other available units nor does the landlord have to take just any tenant. The landlord should conduct his customary tenant screenings to qualify a replacement tenant and to set the offered rent according to his rent policies.
Considerations
A landlord should give careful consideration to a tenant’s offer to find a replacement tenant to fill the vacancy. While the landlord can appreciate the tenant’s good faith offer to bring in a new tenant, it should be the landlord’s policy and practice to exercise control over his business to ensure protection of his tenants and his property in filling a vacancy.
While using the tenant’s security deposit to cover lost rent due to early lease termination could be an option in limited circumstances, using the security deposit for that purpose leaves the landlord without funds to cover any property damage to restore the rental unit to good condition when the tenant departs. Before taking such action, a landlord should conduct due diligence on applicable state statutes regarding the use of tenant security deposits. As needed, consultation with an attorney experienced in landlord-tenant matters may be advisable.
To better protect his business, it can be simpler for a landlord to add an early termination clause in his standard lease agreement. The clause should detail the landlord’s policy and practice regarding a tenant breaking his lease. The subject should be covered during the new tenant orientation to make sure the tenant understands the expectations to fulfill lease terms and conditions, and the consequences of an early lease termination.
The early lease termination policy can include the requirement of a non-refundable early termination fee in lieu of rent responsibility until the unit is re-rented. However the landlord is not obligated to provide such an option and may hold the departing tenant to his obligations for rent until a replacement tenant is installed. With the tenant informed consent at lease signing, if the tenant’s circumstances change and the tenant breaks the lease, there is a set policy that applies to each and every tenant regarding early termination of the lease that helps to avoid claims of discriminatory treatment should one tenant be treated differently than another tenant.
What might be considered a reasonable early termination fee could vary depending on the reasons for terminating the lease, the current rental market, and various other factors affecting the landlord’s business.
It is usually best to calculate the early termination fee based on a conservative estimate of the actual costs of an early vacancy, remembering that there would be a vacancy at the end of the tenant’s lease anyway. Items to consider usually include costs of preparing the premises for the next tenant; lost rent during preparation down-time; marketing and advertising expenses; and lost rent during the marketing period until rent begins from a new tenant. Typically early termination fees range from one to two months’ rent. Payment of the termination fee releases the tenant from rent responsibility for the balance of the lease.
A landlord is not required to include an option for early termination fee and may simply hold the tenant to rent obligations until the replacement tenant is installed. The tenant’s acceptance of an early termination fee is binding on landlord and tenant. Should the landlord not be able to fill the vacancy for several months, the landlord cannot go back to the departing tenant to ask for additional fees.
Documentation
Written documentation is important to record the details of an early lease termination agreement between landlord and tenant and subsequent actions taken by landlord and tenant. It is preferable to require that the tenant provide written notice of intent to terminate his lease with specific details of the circumstances and the scheduled departure date.