Tenant Breaks Lease

How Much Can You Charge A Tenant For Breaking Lease.

Karen’s question: Her tenants are trying to break the lease six months early and she’s trying to find some contract to where she can charge $6,300 to allow them to break the lease to compensate her for them breaking the lease.

You can certainly do that. There’s two different ways that you can approach everything. So one way is, what you can get away with and what the tenant don’t agree to. If they agree to pay your $6,300 to break the lease, the lease is a contract and they’re trying to sever that contract; if they agree to pay you the $6,300 then that’s fine. You could go ahead and do that. Legally speaking, however, you would be on a little bit of a different footing. And legally speaking, and by legally speaking is what would be anticipate from a real estate judge what they would want you to do.

I’m not an attorney and I’m certainly not a real estate judge, but I would think what a real estate judge is extremely likely to want you to do, and this is my experience; they would want you to possibly charging them a one month rent compensation and a penalty fee to help you because possibly you’ll be vacant for at least a month. And what they would want to be done is, they want you as the landlord to immediately begin marketing the property to find a viable tenant. And they would want your current tenants, the ones that are breaking the lease to be responsible for the lease and the rents until that viable tenant is found. So, your responsibility as a landlord would be to immediately 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, but circumstances may occur, and if a tenant needs to get out of the lease or if a job transfer comes, etc., often it’s home ownership. Tenants would try to orchestrate the exact timing that a lease would end but often times it does not work in that timing.

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? No, I don’t think a judge would agree with that. But based on the agreement, you may not end up in front of a judge.

Thirdly, what do I think is fair? I personally think if you’re 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. Reasons for taking fee include marketing, refurbish/refresh unit, and my time for the process it takes to prepare for the new tenant. I would take something, but I wouldn’t take an excessive amount. Good luck!!!

Author:

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.

View all posts by Joe White
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