SA Advice- Tenant Breaking Lease Early

Hi everyone,

I have been following the forum for a long time and have found lots of useful information!

This is my first post and am looking for some help on our current situation.

I have received notice today that the tenant will be vacating the property on 17/12/2019. The lease agreement is signed until the 20/03/2020. My PM has advised so far the tenant is liable for rent until a suitable tenant is found, and a portion of letting fee and advertising fees.

I have a few questions that I hope you could help me with!

1. What is generally considered a reasonble amount of time to find a new tenant, as I do not want to rush to look for a tenant in the week leading up to Christmas.
2. We are considering on doing some small renovation (flooring) and paint before re-leasing out the property. If we were to do this, should we negotiate to end the lease at an early time in good faith? Or should I hold tenants responsible until we complete renovations and find a new tenant?

The tenants has been in place for 3 years and have been good tenants to this point in time.

Any insight or advice would be really appreciated!

Thanks,

Billy

 

Hey Billy

Your PM is correct - rent til new tenant starts and a portion of letting / advertising fee. The formula for calculating those is on the SA Govt website. For example, if its been 3 years and they're leaving about 9 weeks early (based on when new tenant starts, not when old one leaves), letting fee component is likely to be $59 and advertising $11 on a $350pw lease; plus rent til new tenant begins. Its the longer duration that is bringing your numbers down.

1. Rental market is pretty busy here at the moment, have been renting most properties first or second open, for those that are not overpriced or unappealing. You don't have to take the first tenant that comes along, search for tenants and screen them as your normally would.

You have to think a couple of moves ahead like in chess though. If the break lease costs get disputed in Tribunal, you'll be asked to show that you rented it as soon as possible. I've done this and won before - had to show what dates we held opens, what dates we reduced the rent as no applicants were coming along, what applicants we turned down and why.

2. Doing this would put you at risk of going against the above as you won't be able to prove you were searching for a tenant quickly. And for such a little break lease / advertising costs, I'd probably recommend it not being a break lease and allow the lease end early - perhaps ask for say 3 weeks rent instead. This will give you time to get the stuff done and move on.

Cheers
Dave

 

Thanks D.T for the fast response on this.

Thanks for the advice, and I totally agree, that for the little break costs it likely isnt worth doing the break lease.

When you say to end the lease early and ask for X weeks amounts of rent. Is 3 generally an acceptable/standard amount to ask for? Given the holiday period do you think it could be worth stretching that out an extra week factoring in a lot of agencies close over the christmas period?

 

No standard amount, just negotiated on case by case basis

 

Thanks D.T. really appreciate your insight!

 

I can't speak for Adelaide, but my observation within my own portfolio is that the second half of January is the ideal time to be trying to lease a property. If you've got to wait until March, the summer peak has gone. This could be ideal timing for getting a strong rent with the next tenant.

I can't help but wonder, if the tenant has been there for 3 years and you want to renovate anyway, if they challenged the fees at tribunal, despite you being technically right, they might win.

Overall if they were working with me on the exit date and being accommodating to tradies making quotes, etc, I'd probably return the favour and let them go.

 

I (the PM) would mention to the tenant about the end of lease date and that they are responsible for covering the rent till then. Mention if they want to leave early you can list the property and they can pay the listing fee and rent up to the start of when the new tenant commences.

I would then mention that you would be able to find a new tenant quicker if you gave the property a freshen-up, they should be supportive and allow you to do the renos.

If not, just try to find a tenant anyway without the renos, since the rent is covered.