There has been a significant increase in people breaking a lease in WA over the past 18 months, which has major implications for landlords and tenants alike.
No matter what side of the fence you’re on, this information will give you a better understanding of what to do, and what not to do if a lease is broken.
What does ‘break a lease’ mean?
When signing a fixed term lease agreement, you are signing a legal contract under which it is agreed that the occupant will reside in the property for a minimum period of time. Leaving the agreement early is a breach of the agreement and compensation can be claimed by the Landlord.
I am a tenant thinking of breaking my lease – what should I know/consider?
Requirements to break a fixed term lease agreement (ending a lease early) can occur from all kinds of situations, whether that be loss of income, relationship break down or a different leasing opportunity has arisen. Regardless of the reasoning, your first contact needs to be to your Property Manager. They will go into depths as to the break lease processes and will explain your responsibilities to the lease and any potential fees/compensation that may result from breaking the lease agreement early.
If the Landlord agrees for the lease agreement to be broken (they don’t have to!), then generally there are costs that are involved that are the responsibility of the tenant. These are applied in a bid to recover the fees that the Lessor incurred from the Agent for obtaining a new tenancy – the fees applicable are as follows;
- Unexpired portion of the leasing fee (a portion of it)
- Advertising Costs
- Rent until a new tenant is found or the agreement expires – whichever falls sooner
- Difference in rent should the home be let at a lesser amount
It is important to understand that the Tenant is fully responsible for the property including the upkeep of the home, connection of utilities and safety of the home during a break lease scenario.
I am a Landlord and my tenant wants to break lease – will I be out of pocket?
Depending on the circumstances, the goal in a break lease situation is to attempt to minimise the Lessors (that’s you) out of pocket expenses. This is why a lot of the fees are passed onto the tenant whom is breaking the lease.
Landlords need to understand that although some fees are covered, they will still be liable for a small portion of the leasing fee, depending on how long the Lease Agreement has left until expiry.
It is also important for Landlords to be aware that they have a requirement to take “reasonable steps to mitigate the tenants losses”. This refers to the pricing of the property, the advertising campaign and its commencement as well as not unreasonably rejecting applications.
When your Property Manager becomes aware of a break lease scenario, they will be in touch to discuss the situation with you. They will provide you with an up to date CMA (Comparative Market Analysis) which will identify what rental figure could be achieved. It is then recommended that the property is advertised at that figure. Should a higher amount be attempted that does not align with the market then it will be seen as not attempting to mitigate the tenants losses. This could lead to an early termination, penalty free, of the agreement.
What to do when a tenant cannot afford to continue with the lease agreement?
In the case that a tenant cannot afford, or is unable to adhere to their lease, then there are two options to consider.
The Lease agreement is mutually terminated between Tenant & Landlord. In some cases this decision works best, especially if circumstances have changed for the Landlord and the early termination of the agreement suits them more. In this case, the Landlord may have the ability to request some compensation from the Tenant.
Tenants can apply to court for the early termination of the Lease Agreement. This is usually under the circumstances of “Undue Hardship”. The tenant will need to prove to the courts how and why the continuation of the lease agreement would cause them further hardship.
If in the event, you experience a situation where a Lease Agreement requires to be broken, first point of contact should always be your Property Manager. They are the best person to explain in detail the steps and costs associated should this scenario proceed.
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