A break lease is when you have a signed lease with a tenant, and the tenant needs or wants to vacate the property before the agreed lease end date.
Keep in mind a lease is a legally binding contract that a tenant is obligated to honour. The main idea of a lease is to protect both the tenant and the landlord. The tenant knows they have a place to call home for the set period & the landlord knows they have a tenant for the same time frame, so it's a win-win.
We refer to these as Leases, but the official name is General Tenancy Agreement or GTA. On your signed Form 18a General Tenancy Agreement Page 1 Item 6, you will see your lease start and end date. You can see what Form 18 looks like on the RTA website.
Top 3 Main Reasons Tenant Break A Lease
1. Buying Their Own Property
Many tenants don't want to rent forever, so have been saving for some time to be able to find their forever home. Often they will finally have their savings in order, but the search for what they would like to buy can take months, so they are not really sure when this will happen or what date they will settle on the purchase of their new home.
2. Relationship Separation
Unfortunately, people break up. Often one partner will move out. But they have signed a lease which is a legally binding agreement, so they are both still liable for the rent. Either the tenant who stays needs to cover the cost of the rent or both parties need to leave.
If one is staying, a new lease needs to be signed to remove the vacating partner from the lease and legal obligation. It's very common for one party to stay and get a housemate. Should that occur, this housemate needs to be an approved applicant by the property manager or landlord and full application vetting occurs as it does with a brand new tenancy.
3. Job Transfer
Sometimes people get promoted or receive an opportunity to work in the big smoke. It's something they have not planned for, or expected. But it's an opportunity they can't miss out on. So off they go to improve their career and in turn need to break lease.
Of course there are other reasons for a tenant to need to break lease, but the above reasons are the 3 most common we see in this industry.
What Will A Break Lease Cost A Tenant?
1. Rent: The tenant needs to continue to pay the weekly rent until a new tenant is found. So if the new tenant is moving in on say the 20th, the tenant breaking the lease needs to pay rent until the 19th.
2. Break Lease Fee: The cost to a landlord to relet their property is 1 weeks rent plus GST. This cost covers the process of finding a new tenant, processing applications, preparing the lease, doing an exit and entry report, and more.
3. Marketing: If the owner incurs marketing costs, the tenant needs to reimburse the owner these costs.
4. Compensation: Where mentioned that a tenant needs to pay rent until the day the new tenant moves in, this is usually a combination of rent until the last day the tenants moves out and then any additional days is classed as compensation, since the tenant is no longer residing at the property. This is usually equal to the rent that the tenant pays weekly, they will need to continue to pay from the day they vacate until the day the new tenant moves in. It's not practical for a tenant to move out on a Thursday and have the new tenant move in on a Friday. As your property manager we need a couple of days to prepare the property to its highest standard and if the vacating tenant needs to go back, this can take a few days to get this finalised.
Keep in mind the tenant will also have other costs too, like moving costs, cleaning costs, pest spray, carpet cleaning etc.
Can The Rent Be Advertised For More?
If the owner is wanting to increase the weekly rent, the property manager should complete a Comparative Market Analysis (CMA) to determine what the market rent currently is for similar properties in the area. It is critical this CMA is compiled based on the property being rented in a timeframe reflective of current vacancy rates and trends in the market, rather than a speculative potential rent.
It's important to ensure any rent increase does not disadvantage the tenant who is breaking their agreement by way of extending the vacancy period outside the scope of the market trend. Under Section 362 of the Act, there is a duty to mitigate loss or expense when a lease is broken.