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Tenants Breaking Lease - Need Help!

Discussion in 'Property Management' started by B-Mac, 28th Jul, 2016.

  1. B-Mac

    B-Mac Well-Known Member

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    Hi There,

    I have tenants (QLD) who wish to break their lease.

    Lease was signed for 12 months (Jan 2016 to Jan 2017) @ $430 p/wk. They wish to move out this month (6 months in 12 month lease).

    My Property Manager has advised they do not have to pay any fees, or any shortfall if the property is re-let at a reduced price (she thinks its now only worth $400 p/wk in current market).

    Is this correct?

    I find it weird tenants can simply break a lease & pay no compensation to the owner?
     
  2. D.T.

    D.T. Adelaide Property Manager Business Member

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  3. thatbum

    thatbum Well-Known Member

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    Any idea why your PM thinks that?

    Its certainly not the correct general position.

    Generally tenants would owe the difference as long as the lowered rent is a reasonable step in mitigating your loss - which assuming it is genuinely the market rate, then it probably is.
     
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  4. Scott No Mates

    Scott No Mates Well-Known Member

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    I'd also look at the termination provisions for the management agreement too - they're not the brightest crayon in the box.
     
  5. Big Will

    Big Will Well-Known Member

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    My understanding and thoughts are;

    You would need to advertise it at $430 p/w (this is what they are paying) and if you wanted to lower the advertised price have them approve (in writing) to advertise the $400 p/w advertisement.

    If you didn't get them to approve the difference I would think QCAT will rule in favour of the tenant as you have forced the tenant to pay $30 a week without consulting them.

    You could try this before you go to market but the tenant may not approve the $30 week but you never know. I am sure once it has been online for a couple of weeks they will be more likely to drop the rent.

    Nevertheless the tenant will be up for any difference that you are out of pocket for rent and a pro-rated amount for the other fees (letting, advertising etc).

    Thinking of them as a joint LL in someways for this transaction you need to consult with them if you are going to be asking them to reduce the expected income amount as they will make up the shortfall.

    If you get a tenant on week one at $430 then the tenant will get away cheaply but the longer it remains on the market (as your hands are somewhat tied) the more it will end up costing them.

    This is my thoughts but you really should look for a more competent PM by the sounds of it as it doesn't make sense... Unless you agreed to the no break cost lease agreements...
     
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  6. MyPropertyPro

    MyPropertyPro SE Qld Property Management & Investor Services Business Member

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    We are agents in QLD and they are very much incorrect! Tenants should be paying 1 weeks rent plus GST as the re-letting fee and any advertising costs incurred, and obviously the full rent until a new tenant is found. Unless they are breaking their lease under hardship for example however this would be a matter for QCAT and it doesn't sound like the situation here.

    As mentioned above yes the tenants technically should be paying the difference of $30 a week until Jan 2017 if the property has been reduced to $400 from $430. This should have been organised with the tenants prior to the reduction. Mitigating loss for both parties is essential in a lease break situation, hence why the agent has reduced to $400 - to try and mitigate loss for the tenant, however in doing so you will be suffering a loss also of $30 a week that you would have been receiving until Jan 2017. You will be suffering this financial loss due to tenants breaking the lease so you should be awarded this amount.

    Leases are legally binding documents and tenants cannot just leave without penalty (unless awarded by QCAT as mentioned above)
     
  7. DiligentPM

    DiligentPM Well-Known Member Business Member

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    Great advice. Also PMs working proactively for you will secure a new tenancy quickly with quality tenants offering a win-win solution for all parties.

    Indeed tenants sign a legally binding contract when signing lease agreements with clear consequences for break lease situations.
     
  8. Scott No Mates

    Scott No Mates Well-Known Member

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    They should also have signed an agency agreement to enable the current agency to find a replacement tenant and to be liable for the costs.
     
  9. Azazel

    Azazel Well-Known Member

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    Might be time for a new PM as well.
     
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