Tenants Breaking Lease

Discussion in 'Property Management' started by property world, 10th Jun, 2018.

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  1. dabbler

    dabbler Well-Known Member

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    Sorry, I forgot the smiley....to me, it is same thing......this whole thing is a BS argument, they pay, only time that may be different is when a third party decides, if there is a third party, it probably means one side is doing something wrong anyway.

    I call it all income.....or losses.
     
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  2. SarahD

    SarahD Well-Known Member

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    NSW has been this way for ages and ACT updated to make the legislation the same last year. Break your lease in the first 1/2 of the lease agreement and you pay a break lease fee of 6 weeks, break your lease in the second half of the lease and you pay a 4 week break lease fee. This is to cover the owners costs of advertising / loss of rent etc. Prior to August last year ACT used the same lease clause as all other states, tenant pays rent until the day before a new tenancy commences or the tenancy would have originally ended. Neither in VIC or ACT have I had a member refuse any request for the whole amount of compensation - even in a situation in VIC where the property was vacant for 3 months. I could show we had done everything within our power to re-let the property and mitigate any loss to the tenant and they were doing everything they could to delay the letting of the property while they dragged their feet in doing all the right things because they thought that tribunal wouldn't rule in favour of the evil LL and their agent :).
     
  3. AnneC

    AnneC Well-Known Member

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    Hi DT,
    We have just been given notice by our tenant that they will be vacating. They are in 7 months of a 2 year lease. The reason being that they have purchased a property.

    Rents have gone up in the area since it was leased. Can we increase the rent ? If the property rent is increased, and it does not lease quickly, can it be challenged that they will not pay for the time it was vacant because the the higher rent did not attract as many applicants.

    Thanks, Anne



     
  4. AnneC

    AnneC Well-Known Member

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    Hi thatbum,

    Nothing in the act specifies that the tenant must pay rent until a new tenant is found. So what compensation is reasonable? In pursuit of a new tenant, can the rent be increased?
     
  5. D.T.

    D.T. Specialist Property Manager Business Member

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    I think the rules on this per state will vary, so I'll give you some SA info as a starting point.

    Here the short answer is yes, however:
    1) You need to be mitigating your tenant's losses best you can. Eg if takes 3 weeks to find a new tenant and they complain at tribunal, there's 0 chance of you winning.
    2) You also need to pay the leaving tenant the excess (eg if 3 months left on lease and get $30 a month more, need to minus $90 off of their break lease costs).
     
  6. thatbum

    thatbum Well-Known Member

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    Depending on which state you're talking about, the relevant Act almost certainly makes mention of paying compensation to the lessor for breaches by the tenant - that is what applies in a break lease situation.

    Increasing the rent from the original amount is technically possibly still "reasonable mitigation" but I generally would recommend against it for a number of reasons - its quite contentious at times too and so some tribunals won't like it, even if your arguments are reasonable.
     
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  7. Tom Rivera

    Tom Rivera Property Manager Business Member

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    My understanding is that the general definition of a break lease is the same across the states. Tenants and Agents are required to mitigate each other's losses. For us, that means;
    - The tenant is required to pay the costs associated with ensuring the landlord is placed in the same financial position that they would have been in to the full term of lease (e.g. leasing fees, rent and pay out rent reductions to lease term).
    - The Agent is required to make every effort to secure new applicants, and cannot change the particulars of the potential tenancy in any way that makes it more difficult to secure new applicants (e.g. suddenly refusing pets, increasing rent, etc.).

    I'm sure you could argue that the market has moved, so by increasing the rent you're not actually making it more difficult to re-let as you're remaining at market rent, but gee I wouldn't want to be arguing this in Tribunal....

    We had a situation recently where a tenant broke lease in a property well below market (owner's choice...). The two options we agreed were;
    1. Come to an agreement with them on reasonable compensation and release them from the lease (e.g. pay two weeks rent), then re-list at +$50wk
    2. Break lease at current rent as normal.

    Landlord's ended up being nervous about interrupting their cashflow and went for the latter strategy (against my recommendation, renting properties that far below market is frustrating).
     
    AnneC likes this.

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