31 May 2015
Parting is such sweet sorrow…. What happens when a tenant breaks lease?
It was only a few months ago, you watched as your new tenant moved into your investment property and now you have just found out that your tenant wants to break the lease and leave.
The reasons why a tenant may have to break lease vary greatly, some of the usual reasons are:
- Relocation due to work
- A change in family circumstances,
- Or they may have found a more affordable property in an area that suits them.
Whatever the reasons it is not the end of the world. The first thing to remember, in South Australia, if your tenant is under a fixed term lease they cannot just terminate the lease automatically and if they are on a periodic agreement they must give at least 21 days’ notice.
If they are breaking a fixed term lease. They must first formally give notice to terminate the lease as of a break lease date. This notice must be in writing. The residential tenancy agreement they signed is a legal contract and therefore as the owner you are permitted to ensure that your financial position will be no worse off due to the tenant breaking the agreement.
This usually means that the tenant will continue to be responsible for the property until a new tenant takes over.
You can, of course agree to let them out of the lease at no costs, if you have reason to need the property but as an investment this is not usually the case.
Some of the potential cost the tenant will be responsible for are:
- They will continue to be responsible for paying the rent until the new tenant starts or the end of their natural lease (whichever comes first).
- The tenant is also responsible for compensating you for any additional expenses occurred by you due to have to re-let the property, this can include a proportion of the advertising costs and any letting fees payable to the agent. (IMPORTANT NOTE: In South Australia there is a formula used to calculate the amount payable by the tenant which essentially takes the amount and apportions it to how long they have been in the property against how long they had left to run on their lease).
- They continue to be responsible for regular maintenance of the property (e.g. lawn mowing).
A couple of important points as they property owner to be aware of:
- If you try to raise the rent asked of your property, this additional amount achieved can be deducted off the amount that the former tenant will have to pay in fees and charges. Example: If you get an additional $5 per week and the former tenant had 15 weeks left on their lease they can reduce their costs by $75, as this is additional money you would not have received if they remained in the property.
- You must show all reasonable efforts to relet the property, including ensuring it is property advertised every week should it become vacant.
The first step is to talk to your Raine & Horne Property Manager and take all reasonable steps to ensure the property is re-let as soon as possible, failure to do so may result in your tenant trying to make a claim with the aim of reducing their costs by arguing that you haven’t used your best endeavours to let the property and lessened their risk and expenses.