Penalties if 1 year lease broken?

Question

I am a landlord in California. I have to renew a lease in May, but my tenants informed me he wants to do month-month in order to buy a home. I don't want to do that a prefer a yearly lease. He asked me what the penalties would be if he breaks a 1 year lease (like 6 months into it after he found place to buy). What consequence can I have for my tenant if she breaks such lease? How high could I go with a penalty? Can I simply refuse to renew the lease for the tenant?

Jacob Sampson · Answer

After the first year lease I always go month to month.  Have they been good tenants?  If so why not just go month to month to help them out.  Just require 30 or 60 days notice.

I'm not sure about California it seems to be a pretty tenant friendly state.  You might go month to month but up rent by $50 or some other reasonable amount.

Jim Adrian · Answer

@Kimberly H.

Yes this is amount of the fee based on how many months remaining in the lease.   It is written without actuals dollar values so when the rent and security deposit is increase you don't have track down this change as well.  Nor did you leave any money on the table when they want to break the lease.  If you raised the rent by $50, security deposit should have increased by $50 as well, you could have lost on $100.

Jim Adrian · Answer

After the initial term of the lease I move to month to month as well like the others.  I have added a scale fee which all include losing the security deposit  as well as the fee listed blow.  I do 2 yr lease terms.

• 0-3 Months: There is a penalty fee of one (1) month’s rent.
• 3-6 Months: There is a penalty fee of two (2) month’s rent.
• 6-9 Months: There is a penalty fee of four (4) month’s rent.

Sarah Ziehr · Answer

I would not renew the lease with this tenant. If he/she is looking now, why won't they be able to close by May?

If you do agree to month to month, I would not let them go past October. In my market it is a crap shoot if you will get a renter during the winter months. I have one Landlord client who has a vacancy going on 4 months with no interest.

Matt Smith · Answer

@Gloria Mirza

Is 1 month the max fee I could charge? What if the place is empty for 2 months? (if I get it back at Thanks Giving and want to charge a high price)?

Can I request a 60 days notice or California is only 30 days?

Gloria Mirza · Answer

I would ask for more rent as month to month and their cooperation in showing the rental to other perspective tenants once they have given their 30 day notice.   It's a hot market in the bay area and it shouldn't take you long to find new tenants.  This way you could potentially line up the tenants so that there is a minimal gap between tenants.  I did that and it worked out great for me, the property was only vacant for 3 days, barely enough time for me to get it ready for the new tenant.

In California, if you charge the tenant a fee of say 1 month, but rent out the property after 2 weeks, you are required to refund the tenant the fee minus the 2 weeks rent the property was vacant.

Gail K. · Answer

I  agree with the suggestions to offer a month to month tenancy at a higher rental rate.

Month to month tenancies are lousy for tenants who want the stability of a long term rental but great for those who find they might need to move quickly (say for work, school or, in this case, buying a house).   Why should you not profit from giving them the flexibility to move with a 30 day notice to terminate their lease?

Your reasoning for a higher rent would be that one may think they will be closing on a house in a certain month only to find this closing delayed beyond this time period due to issues they have no control over.  In the meantime they continue to have a roof over their heads.

Gail

Nathan Gesner · Answer

Instead of signing a lease that you know they will break, just charge them a higher monthly rent. I generally see increases of 10% - 20% so a $2,000 rental would be $2,200 - $2,400.

If you charge an early termination fee, there is the risk of a tenant not paying it. With increased rent, they pay every month so you reduce your risk.

If used to charge a full month's rent for a termination fee but most tenants would sneak off without any warning rather than pay the penalty. I lost out quite a few times. I switched to 50% of one month's rent and 30 days notice. Since decreasing the penalty, tenants are good at giving me 30 days notice and paying the penalty. Sometimes they give me short notice less than two weeks but I still hold them responsible for a full 30 days of rent.

Jeff Gates · Answer

I have a termination clause in my lease that allows either party to terminate with a 30 day notice for a addition termination fee of $2000.

Alexander Felice · Answer

if you don't want to do month-to-month or you don't want to renew their lease, you don't have to. Many people here switch to month-to-month after the first year but I never ever do that. in fact, I hate it. I like the stability of the lease.

Look you know this guy is going to break the lease, you don't want to penalize him, you want to find a mutually beneficial solution. Either don't renew the lease, he can find a month-to-month lease on his own OR do a 6 month lease if you're ok with that.

I would not hold a tenant who I knew was actively looking to dump me with a vacancy. Don't put his needs in front of yours, his conviennce shouldn't come at your expense.

Penalties if 1 year lease broken?

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