Tenants informs breaking lease (Covered by Landlord insurance?)

Discussion in 'Property Management' started by world2160, 18th May, 2017.

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  1. world2160

    world2160 Active Member

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    Hi everyone,

    My tenants are telling us they will be breaking the lease (4 months contract remaining) and returning the keys in a couple of weeks time. They cannot give exact date at this stage. They agree to pay with the 4 weeks bond.

    I have Landlord Insurance with Rent Default (Coles). According to the PDS, (I think) I am entitled to claim the weeks until a new tenant moves in MINUS the 4 weeks bond. For example, I will get 2 weeks rent from Coles if my new tenant moves in in 6 weeks.

    Question - The Coles PDS states "your tenant defaults in paying rent owed at the site under the terms of the lease to you or your rental agents", does this mean that i fit the criteria? Even though the tenants tell me before hand that they are going to break the lease? I am bit worried because there is another statement which is excluded:
    "an agreement of any nature (whether express or implied ) between you and the tenant to terminate the lease". I haven't "agreed" to terminate the lease, but i can't lock them up in the house either!

    This is in NSW
     
    Last edited: 18th May, 2017
  2. Matt E

    Matt E Active Member

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    Hi world2160 -

    Sounds like you might be headed for a potential problem with these tenants, so early and clear communication (in emails, for example) will help get your point across.

    I manage a real estate office in SE QLD, but I don't think the state differences would greatly change how to respond in this situation.

    First, your tenants are required to continue paying rent until you find a replacement tenant or the term of their lease expires. They don't have the right to walk out of a lease contract with no penalty - they have a legal responsibility to pay you for the loss of rent that they would have otherwise paid. Your insurer would not be happy to pay if you've allowed your tenant to walk out of their obligations!

    Second, never agree to apply the bond to outstanding rent without being 100% certain that the property is being returned clean and free of repairs. We advise tenants that they must pay rent through to the end of their lease, and then refund the bond once the property clears the exit inspection.

    Hope that helps -
     
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  3. world2160

    world2160 Active Member

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    Hi Matt, in NSW rental laws are little different. Tenants only need to pay 4 weeks (their bond) if they break the contract. There is no obligation for the tenants to pay until we find new tenants.

    My question is, are insurance companies obliged to pay the time to find new tenants MINUS the 4 weeks bond (even though they told us beforehand that they are leaving).
     
    Last edited: 18th May, 2017
  4. D.T.

    D.T. Specialist Property Manager Business Member

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    Doesn't sound right to me that NSW rules differ by that much - everywhere else I'd thought tenant was responsible until new tenant found (or lease ends if that happens first). Or at least the States I've worked in.

    @Andrew Hancock or @Lil Skater have expertise in NSW I think.
     
    Last edited by a moderator: 14th May, 2018
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  5. Magnet

    Magnet Well-Known Member

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    It all depends on your lease terms.
    Breaking_a_lease_early
     
  6. Phase2

    Phase2 Well-Known Member

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    @world2160 as per @Magnet 's post above, did you include the optional break fee in your tenancy agreement?

    If you didn't the tenant should be on the hook for rent until you find a new one.
     
  7. Paul@PAS

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

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    Call the insurer. I would be surprised if its covered. Default would only occur if they dont pay what is legally obliged. If its legally obliged then tribunal enforcement may be required or attempted.

    You seem to have a loss of tenancy rather than a default
     
  8. world2160

    world2160 Active Member

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    Thank you everyone, I think the agent had the optional break fee (4 weeks) in the contract. Apparently that's the standard in Sydney?

    If so, i am sure the tenants are off the hook, but what about the insurance company? It is still a break of contract because the tenants leave before the end of the contract...
     
  9. balwoges

    balwoges Well-Known Member

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    You need to find other tenants to mitigate your loss ASAP, the legalities will sort themselves out over time.
     
  10. world2160

    world2160 Active Member

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    The problem is I can't lease the house until the tenants return the keys. Since they are already paying the full bond as penalty, there is no obligation for the tenants to allow us to open house.
     
  11. Xenia

    Xenia Well-Known Member

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    Yes you are entitled to claim rent loss due to a break lease.
    I don't know the specifics of that insurance policy but assuming it's a proper landlord policy then yes you can.
     
  12. Magnet

    Magnet Well-Known Member

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    Privacy and access | Tenants NSW
    According to this that's incorrect. Not sure what your property manager is telling you. The tenant can't dictate that you can't show the premise in order to get another tenant. 'Reasonable access' they can of course make it difficult but can't refuse point blank!
     
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  13. Xenia

    Xenia Well-Known Member

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    Yes you can and should gain access while tenant is still there.

    They can't just elect to pay the bond as penalty, you are claiming the bond as loss. You need to mitigate your losses and you can't let them stop you.

    You can't tell a tribunal that the tenant just didn't allow you to do inspections. You need to be the one in control and calling the shots not them.
     
  14. MyPropertyPro

    MyPropertyPro REBAA Buyer's Agents Sutherland Shire & Surrounds Business Member

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    I really don't want to give NSW specific advice because although I own properties there, I am not qualified in state legislation. Suffice to say that you should definitely not agree to any terms of a lease break - simply let them break the lease. This usually affords maximum protection under landlord insurance provisions.
     
  15. Magnet

    Magnet Well-Known Member

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    But as a landlord of a NSW property you need to educate yourself on the applicable state legislation regardless of whether you have a PM. I know you probably have a greater understanding than most. Agreeing to something over and above the provisions of the lease agreement is not in the landlords best interest most of the time as you have indicated above.
     
  16. MyPropertyPro

    MyPropertyPro REBAA Buyer's Agents Sutherland Shire & Surrounds Business Member

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    Yes, thank you for that magnet. I didn't say I wasn't educated in it, I said I wasn't qualified to provide advice. There is a big difference and you should read and interpret what I actually said properly prior to passing judgement. I am running a business and posting under a business name. Do you think it would be a good idea for me to provide advice I am not qualified to provide, or would that just make me a spruiker?

    Maybe if more people were more careful about the advice they provided and made sure they were qualified to do so before providing it, many investors wouldn't fall into the many traps that are out there.
     
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  17. Lil Skater

    Lil Skater Well-Known Member

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    Don't know what your PM is doing.... I don't know any state where the tenant doesn't have to give access for prospective tenants if they don't want to! I think it's utter bull the fixed break lease costs in NSW, but that's another story. If the tenant plays hardball with inspections, just get PM to serve a notice of entry. In Vic you can hold inspections in the last 14 days of the tenancy.

    Your PM needs to find the date they're leaving as priority - the PM and prospective tenants need to know when the property will be ready!

    Unfortunately on insurance I'm not too sure. I haven't dealt with Coles before. I don't think this would class as default though, as my understanding is the fixed break fee ceases the lease agreement and the tenant is no longer responsible beyond that point. Of course there's a loss to you there, but I think this is likely what it would be on insurance terms. Best to call and find out.
     
  18. SeafordSunshine

    SeafordSunshine Well-Known Member

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    Dear OP,
    I agree with a the previous posters.

    Start advertising NOW!
    One thing is for sure, you will need to show your insurance that you have tried to mitigate your loss.

    I suggest that you notify your tenants in writing that:
    Unless they agree to open for inspection times, ( for example by negotiation one weekday evening and Saturday morning ) they will be responsible for the rent until a new and suitable tenant is found after their departure date.
    If they leave owing monies, or have damaged the property, or left their things there, you will pursue them through the courts, and notify Credit reference associations.
    Speak with the licensee in charge of your Managing Agency and tell them!
    I hope this helps!
     
  19. Ted Varrick

    Ted Varrick Well-Known Member

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    @world2160 reading your post and then the Fair Trading link in @Magnet 's post, it might be worth your while to expressly disagree to the tenants breaking their fixed term lease, then pass this on to the insurance company, and then make a claim.

    Why is it for some reason these days people think they can just break a contract without any ramifications?

    After all there's your problems and other people's problems. Which one is this?

    Call them out.
     
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  20. world2160

    world2160 Active Member

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    We don't know the EXACT date of when the tenants are leaving. They told us approximately X weeks (they told us their reasons and i understand their position). Are there any legality that we need to be aware of when advertising? Are we even allowed to advertise without knowing the exact date?
     
    Last edited: 18th May, 2017

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