Investing in rental properties is quite an effective way to earn a substantial and steady income. However, being a landlord can also come with some unexpected challenges, especially when dealing with difficult tenants.
Lease agreements are legal documents that establish an agreed-upon monthly rent to be paid by a tenant for a defined period. Most contracts are annual, but some cover different periods of time ranging from 6 months to 2 years or more. As a landlord, you hope to find reliable, long-term tenants that will take care of your property, pay on time, and adhere to all the lease guidelines. Unfortunately, tenants like this aren’t always easy to come by.
Although a lease contractually obligates tenants to pay rent for the duration of the agreement, some might try to terminate their contract and move out before the lease expires. When a tenant wants to break their lease early, landlords are forced to fill the vacancy in a short amount of time, and this can pose a substantial financial burden. In these situations, it is important not to panic, as this happens more often than one might think. Just make sure to stay informed on your rights, obligations, and local laws to help make it through this challenging period of transition.
How can I protect myself?
The best way to protect yourself is by including an early termination clause in your lease agreements. Should your tenants want to break their lease, this clause will clearly outline all the expectations, details, and procedures for both parties. You can include an early termination fee within the clause, which is typically equivalent to a month or two of rent, or a stipulation requiring the tenant to pay rent until new renters can be secured. Also consider including specifications on a minimum notice period with clearly stated consequences should the tenants not adhere to the early termination guidelines.
Requiring tenants to provide written notice with justifiable rationale for early termination is also standard. While this won’t necessarily stop tenants from breaking the lease early, it will make the process much less stressful while providing you with some compensation and a longer period of time to find new occupants. It is important to note that some of these suggestions are already required by law in certain states, so although it’s still recommended to clearly state these expectations in the initial agreement, it is important to also research your local leasing laws.
When can a tenant do this?
Although tenants are contractually bound to pay rent for the entire specified period, some circumstances allow them to break the lease. Common reasons for moving out early can include job loss, military deployment, bankruptcy, health issues, work relocation, or divorce. Again, states have different definitions for what constitutes a valid reason to break a lease, so doing your research and understanding what your local laws allow is highly important. Unexpected and difficult circumstances can arise at any point. Therefore, while you should still require your tenant to abide by the lease’s guidelines, try to remain sympathetic and understanding of your tenant’s circumstances.
Note that tenants can also terminate the contract if they feel the landlord has breached certain agreements during the rental period. Landlords are held responsible for certain privacy and safety standards, and as in any agreement, both parties have rights. As such, tenants may also have grounds to move out early with no legal repercussions should they have evidence of wrongdoing by the landlord.
When can a tenant NOT do this?
If a tenant wants to break the lease for unjustifiable reasons, such as finding a different property they prefer, moving in with a partner, or buying a new home, you are not required to comply. Again, check your local leasing laws, but should your tenants want to move out early for an invalid reason, remind them of their contractual obligations to pay rent for the agreed-upon period.
Another angle that tenants might take is to allege that their landlord has broken the lease agreement. Your tenant could bring forth false allegations against you, claiming a breach of contract to get themselves out of the lease. For this reason, it is important to always keep records of messages between yourself and your tenants, completed maintenance requests, and photographs of items handled to demonstrate and support that you have kept up your end of the bargain.
What if a tenant wants to sublease?
While this might seem like a simple solution, it’s recommended you proceed with caution, as your current renter might not go through the same screening process you would when finding a subtenant. In simpler terms: it’s not your current tenant’s duty to validate the financial stability, credit scores, and other important considerations for a future occupant. As such, you need to screen anyone they bring forth with the same level of scrutiny as you would any other potential new renter. Making sure a new tenant fulfills your criteria is your job. That said, a referral from your current renter can be a good first filter for a future resident. Lastly, including a subletting clause on the initial lease outlining clear procedures on how, and if, tenants can bring forth potential subleases is an important consideration.
What if my tenant doesn’t cooperate?
Should a tenant want to move out before the end of their contract, they must be communicative, understanding, and adhere to the procedures outlined in the lease. If they decide not to or are unable to pay their rent without discussion, accommodation, and agreement, they are violating terms of the lease, and as such, you can pursue them with legal action.
Leases also require a security deposit, typically equivalent to a month or two of rent, which you can withhold and use to mitigate damages should your tenant become uncooperative. There are also specific state laws, procedures, and homeowner protection policies to follow regarding abandonment should your tenants leave, stop paying rent, or become unreachable.
Tenants breaking a lease can be a stressful and uncertain time for both parties, so being communicative and setting clear guidelines will help resolve the situation amicably. Taking advantage of tools like the Tellus App rental management platform will assist not only with finding new tenants but also in providing free, user-friendly ways to maintain important records and communicate with your tenants.
Additionally, don't be afraid to consult an attorney familiar with local rental laws to make sure you’re fully informed on what you can and can’t do. Remember that you have rights and responsibilities to adhere to, and it is possible that this inconvenience will end in a mutually beneficial situation for both you and your tenants. The key is maintaining open dialogue and an orientation towards solving the issue.
Related: Best Practices for Landlords