Tenant Break Lease Charge

Someone questioned saying their tenants are trying to break the lease six months early, and they’re trying to find some contract where they can charge them $6,300 for breaking the lease to compensate for their action.

There are two different ways that you can approach this.

  1. What can they get away with or what the tenant don't agree to. If they agree to pay your $6,300 to break the lease; the lease is a contract. If they are trying to sever that contract and they agree to pay you the $6,300, then that's fine and you could go ahead and do that.
  1. Legally speaking, however, you would be on a bit of a different footing. Legally speaking is what a real estate judge would recommend doing. However, I am making it clear that I am not an attorney nor am I a real estate judge, but I would think what a real estate judge is extremely likely to want you to do, and this is based off of my experience is quite possibly may be entitled to one month rent for compensation as penalty fee to recover vacancy for one month. And what they would want to be done is, they would want you as the landlord, to immediately begin marketing the property to find a viable tenant. Or they would want your current tenants, the ones that are breaking the lease, to be responsible for the lease and the rent until that viable tenant is found. So, your responsibility as the landlord would be to immediately try to take reasonable steps to try to find a replacement tenant. The tenant's responsibility here would be to continue paying the rent until that tenant is found.

In that scenario, that really is kind of fair. And I don't know how much of a penalty - I mean, life happens and if a tenant needs to get out of the lease, if a job transfer comes or if any unforeseen issue arise with the tenants, most often it's home ownership. And trying to navigate home ownership, buying their first home and trying to orchestrate with the exact timing that a lease would end is something proven to be a challenge. A lot of this does come down in my opinion to what's fair. Do I think you can get away with charging them $6,300? Yes. If they agree to that, then yes. I do think you can go ahead and charge them $6,300. Do I think a judge would agree with that and if they agree, you're not going to end up in front of a judge, but do I think a judge would agree with that? No, I don't think a judge would agree with that.

Finally, what do I think is fair? I personally think if you are actually made whole, if you market the property, you find a viable tenant and you're exiting tenants pay you the rent rate to that very moment that the incoming tenants pay you the rent, then I think it's just fair for you to take a fee. And I would take a fee because of your effort and having to write a lease, having to market the property and also having to get in and refresh the property for the new tenant. So, I would take something, but I wouldn't take an excess amount.


Joe White

Joe White is a Philadelphia Property Manager and Real Estate Broker. He is the owner of Grow Property Management and has been involved in the management, sales and purchases of Philadelphia area rental investment properties since 2008. He is an author and works as a real estate investment consultant and construction manager.

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