Tenant to break lease

Discussion in 'Property Management' started by sparklestorm, 13th Dec, 2018.

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  1. sparklestorm

    sparklestorm Well-Known Member

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    Hi all,

    I have a tenant who is currently in a year four year fixed term lease. He has broken it just one year in and I require some assistance regarding the pro-rata letting fee.

    How are pro-rata letting fees calculated? What the equation behind it?

    It also stipulates on the lease agreement that the tenant must provide 120 days notice, however has not. What are the implications of this?

    Do additional clauses hold any substance at a tribunal?

    Thank you all in advance for your input.
     
  2. Marg4000

    Marg4000 Well-Known Member

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    A four year lease is not standard.
    Will the tribunal be able to assist you?
    Marg
     
  3. balwoges

    balwoges Well-Known Member

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    Commercial Lease?
     
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  4. thatbum

    thatbum Well-Known Member

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    If you're talking about the apportionment of fixed costs involved in finding the tenant, its usually the percentage of the tenancy period left when a new tenant is found.

    ...nothing? He's breaking lease after all.

    What additional clauses?

    Don't you have a property manager helping you with all this?
     
  5. D.T.

    D.T. Specialist Property Manager Business Member

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    Break lease costs are different in each state. I see you're in Victoria so @Lil Skater is the best PM there to guide you through how its calculated there.

    No it doesnt, you said its a fixed term lease.
    If its periodic, then you can charge rent in lieu of that notice. However thats not the situation you have here - the tenant has broken lease instead.
    Sure, if they're legitimate.
     
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  6. Lil Skater

    Lil Skater Well-Known Member

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    Is this residential? What state? I'm not aware of any state where a tenant is required to provide 120 days notice, this is against every legislation I've heard of. Correct me if I'm wrong.

    Pro-rata fees are just that, it's based on the portion of the unused lease. So if you paid $1,000 for a 4 year lease it would be $750 if they broke their lease exactly 12 months in. It is based on the fee you paid for that tenant, not the fee you will pay for a new tenant. (In Victoria)

    Additional clauses may or may not hold substance, it depends whether you're attempting to contract outside of the legislation - see point one.
     
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  7. sparklestorm

    sparklestorm Well-Known Member

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    The 120 Days referred to that if they gave 120 days notice three years into their lease they would be free of any penalties associated with breaking lease.

    So the landlord has come back saying why is he now paying re-letting fees again when we had in place a four year lease and now will have to yet again pay for re-letting fees as the tenant broke lease. I mean the tenant that wants to take over is a 12 month lease? The pro rata letting fee doesn't cover this cost and now the landlord has incurred costs that he shouldn't.

    The equation of break lease are as such : Letting Fee $ / 12 Months x remaining months = pro rata amount.

    In this case. $1,800.00 is the letting fee / 12 months = 150

    150 x 34 = $5,100.00

    So please correct me if I am wrong?
     
  8. Shogun

    Shogun Well-Known Member

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    From comment above $1800 letting fee for 4 year lease. if they leave after 1 year (3 years remaining) then 3/4 of $1800 is what they need to pay ie $1350
     
  9. Lil Skater

    Lil Skater Well-Known Member

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    I'm just going to answer as though this is in Victoria.

    In Victoria, there's no 120 day notice period for tenants. Only for the landlord issuing it outside a fixed term tenancy. I'm not aware of any state in Australia where a tenant needs to provide such notice, but happy to be corrected by someone else if this is something I am unaware of. Tenant needs to give 28 days' in Victoria.

    If it is in Victoria and you have that notice period in your lease, it is unenforceable.. It's outside the Residential Tenancies Act.

    The pro-rata amount is based on what was paid for the 4 year tenancy. If you had a tenant move straight into the property on a 4 year lease, this would be the full letting fee, divided by the remaining term.

    Ie. $1,800 was paid to secure a tenant on a 4 year agreement. $1,800 / 4 years = $450 per year/$37.50 per month. If the tenant is breaking their lease exactly 1 year in, the landlord would be claiming $1,350 being the 3 unused years of their tenancy.

    The landlord can advertise for an initial 3 year lease to therefore not be out of pocket (they would pay $450, but that's because it's already been "used up") or a different term that suits them.

    If it was a lease renewal though, technically the landlord has only lost the lease renewal fee and not the letting fee. For arguments sake, let's say that was $400 - meaning the tenant would be $300 and the landlord would pay a full letting fee to the agency.
     
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  10. balwoges

    balwoges Well-Known Member

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    The OP has never stated whether this is a residential? or commercial lease, sounds like a commercial and therefore you would need to go back to what the conditions of the lease state.
     
  11. sparklestorm

    sparklestorm Well-Known Member

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    Thank you all for taking the time to give me advice and for your patience.

    This is based in Victoria.

    The 120 days was an additional clause in the lease put in by the previous property manager who in hindsight according to much of the commentary was clearly not very good at their job.

    What I am failing to understand is how the landlord will be compensated for this according to the equation put forth re: 1,800 / 4 Years = $450 = $1350, he still needs to pay the agency $450 out of pocket + another $1800 for further letting fees.

    Are you saying that the Landlord should have been charged $7,200? 1,800 x 4 Years = $7200 That there should be an annual letting fee despite the four year lease in place?

    The landlord is now completely enraged that he will be out of pocket and be up for 3 further letting fee terms which will be $5400 for the next three years that he shouldn't be responsible for?

    Thank you all!
     
  12. sparklestorm

    sparklestorm Well-Known Member

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    By the way guys it is RESIDENTIAL..... sorry!!
     
  13. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    If I was the tenant I was refuse to pay. Take the tenant to the tribunal see how far it gets. They will throw it out.

    The previous PM may be liable for their tenancy advice and the lease they drew up. See a solicitor.
     
  14. balwoges

    balwoges Well-Known Member

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    If you as PM got the 4 year leasing fee at time of the original lease, I would not be chasing your LL for any lease fees, find a tenant and take the balance of the 120 days notice from your original tenant plus time it takes you to find another tenant from their bond.

    Do you want to lose 3 years management fees and the LL for fees already paid?
     
  15. sparklestorm

    sparklestorm Well-Known Member

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    Sorry to be clear 120 days has nothing to do with the fees or anything of the sort.
    I was just clarifying what the ramifications could be for those not adhering to a lease agreement additional clauses, it has nothing to do with the fees.

    So let the 120 days no longer be included in further discussions.

    But the $1800 is only two weeks rent not a four year leasing fee.
    Are you suggesting that the former PM should've gotten $7,200 as a letting fee then and charged for four years as opposed to one?
     
  16. Scott No Mates

    Scott No Mates Well-Known Member

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    :eek::eek::eek::eek::eek::eek::eek::eek:

    I may be a little slow on the uptake but @Terry_w or @KateAshmor or @thatbum may be able to confirm, an agent cannot prepare a lease which extends past 3 years, a solicitor must prepare these leases (that's the case for NSW and commercial leases at least).

    If the tenant is providing 4 months notice, when are they moving out? Is it possible to secure a tenant prior to the 4 months?
     
  17. balwoges

    balwoges Well-Known Member

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    [QUOTE="Scott No Mates, post: 658698, member: 146"
    may be able to confirm, an agent cannot prepare a lease which extends past 3 years, a solicitor must prepare these leases (that's the case for NSW and commercial leases at least).[/QUOTE]

    That's what I was taught in the Law Classes I attended ...
     
  18. sparklestorm

    sparklestorm Well-Known Member

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    An agent cannot draw up a four year lease on a residential property?
     
  19. Shogun

    Shogun Well-Known Member

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    6.
    Tenancy agreements exceeding 5 years
    This Act does not apply to a tenancy agreement
    that is a fixed term tenancy agreement if—
    (a) the fixed term exceeds 5 years; and
    (b) the agreement does not include a provision
    enabling the landlord or the tenant to
    determine the agreement by notice
    (otherwise than on the grounds of a breach of
    the agreement) before the end of 5 years
    after the agreement is made.

    http://www.legislation.vic.gov.au/d...6d8118d4bcaca256e5b00213c3d/$file/97-109a.pdf
     
  20. TheRayTracer

    TheRayTracer Well-Known Member

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    Shogun explained it with an example.

    There is a similar working example at: If you do not give notice (if you break the lease) (under re-letting fees)

    $1800 would be about right for 4 years. This been said, most REA's don't take the length of the tenancy agreement into account as most are of one year in duration.