Tenant breaking 5 yr lease, barely a yr in

18 Replies

We were thrilled to find a tenant in California who was willing to sign a long term lease due to a project he was working on. The caveat was the rent was set at below market and fixed for the 5 yrs (rookie mistake). The tenant just informed me he is planning to quit his job and will be breaking the lease. At this point what are my rights as a landlord? Do I have the right to keep his entire security deposit? Any suggestions or tips will be much appreciated!
@Matt K. They are technically on hook for the entire lease term, but unless I take them to small claims court (which I am trying to avoid). Given the laws in California, the most likely outcome is to get them out of the unit and charge them for fees associated of replacement. We set the rent just slightly below market given the long term lease agreement, something I terribly regret.

Its easy to think that a lease gives you some assurance you'll have a tenant for a while.  It does not.  A lease is much more binding on the landlord than the tenant.  If a tenant want's to leave, they will.  As you have now found.  You've essentially given someone a below-market lease thinking they were bound, only to find its not really very binding.

My lease includes a "improper lease termination fee" that kicks in if the tenant does not give notice as required by the lease.  In your case, this would apply.  I set it equal to the security deposit.  That said, I only do month to month leases.  So, look at your lease and see what it says.  And speak with your landlord/tenant attorney.  State laws may allow some fee, even if the lease doesn't specify one.  But may not.  Your lease may have an acceleration clause that makes them responsible for the entire lease even if they leave early.  Even if so, you're almost never allowed to collect double rent.  So, once you get a new tenant you can't collect anything from the old tenant.  I'd try telling the tenant you'll try to get a new tenant ASAP but they have to pay rent until then.

By the way, if the property is mortgaged, have a look at the promissory note.  The due on sale clause often states exceptions that don't violate this clause.  A common exception is leases for three years or less.  So a five year lease often does violate the due on sale clause.

@James Hsia . I would consider this a blessing that he is leaving on his own since you locked yourself into a below market lease for five years. I would find a new tenant ASAP at market rate and only allow a one year lease. A five year lease benefits the tenant more than you since they will leave if they want to and you would not be able to force them out before the lease ends unless they violate the terms of the lease and you evict them.

in this case, you should thank the tenant for getting you out of a terrible business decision. Why on earth would you ever want a tenant to pay under market rent for 5 years? He may have just saved you a shitload of money, by leaving early. Now you can find a new renter to pay market rent.

Originally posted by @James Hsia :
@Matt K. They are technically on hook for the entire lease term, but unless I take them to small claims court (which I am trying to avoid). Given the laws in California, the most likely outcome is to get them out of the unit and charge them for fees associated of replacement.

We set the rent just slightly below market given the long term lease agreement, something I terribly regret.

How do you figure they are on the hook for the entire lease term? Let's say they move out this month. Are you seriously going to take them to small claims court every month if they don't pay rent? You can't sue someone for future rents, only for loss you already incurred. The judge is going ask why are making no attempt to re-rent the property. 

Generally it is reasonable to charge them for one month after notice is given and one month's rent for "re-renting expense". My general agreement with tenants is that they are responsible for rent and utilities until I get it re-rented. That usually happens within a month. My advice in the future is never sign a lease agreement longer than a year, especially in California. You are giving the tenant all the power.

More importantly stop being afraid of vacancy. Leases do nothing to ensure a tenant stays long term. I have had tenants break leases after 6 months and I have had tenants on month-to-month agreements stay 10+ years. People move when they want to or need to move. 

In WA, any RE agreement longer than 12 months needs to be notarized.  I've never even heard of a 5yr lease.  That probably implies an equity interest and would require your having to foreclose if in default. LOL

Thank this tenant for leaving, below market rent or no,. Your lease is most likely invalid and he isn't forcing you to foreclose.  Security deposit withholds are the most litigated matter in the landlord space.  Do it by the book and be lenient.

The landlord has a duty to mitigate the risk and actively seek a new tenant. The lessee is responsible to the lessor for any rent that the lessor did not receive. This includes amounts, if rented for less than the original lease, that the lessor would be owed during the five years but did not receive. The lessor can not "double dip".

The tenants have actually been a pain to deal with, extremely demanding and had a few run-ins with late rents. Deep down I want them out, but I think it also terrifies me to have the place vacant. This experience was humbling and sometimes you learn things the hard way.

Originally posted by @Amy Beth :
@James Hsia. I would consider this a blessing that he is leaving on his own since you locked yourself into a below market lease for five years. I would find a new tenant ASAP at market rate and only allow a one year lease. A five year lease benefits the tenant more than you since they will leave if they want to and you would not be able to force them out before the lease ends unless they violate the terms of the lease and you evict them.
This was the same question I asked my PM, legally they are required to be in for the entire lease. However, going through small claims court is the last thing on the list. Appreciate the advice, you bring up a good point - vacancy is what I am afraid of and hence had the idea to lock someone in for long term. That was a lesson learnt and a terrible business decision on my part~!

Originally posted by @Joe Splitrock :
Originally posted by @James Hsia:
@Matt K. They are technically on hook for the entire lease term, but unless I take them to small claims court (which I am trying to avoid). Given the laws in California, the most likely outcome is to get them out of the unit and charge them for fees associated of replacement.

We set the rent just slightly below market given the long term lease agreement, something I terribly regret.

How do you figure they are on the hook for the entire lease term? Let's say they move out this month. Are you seriously going to take them to small claims court every month if they don't pay rent? You can't sue someone for future rents, only for loss you already incurred. The judge is going ask why are making no attempt to re-rent the property. 

Generally it is reasonable to charge them for one month after notice is given and one month's rent for "re-renting expense". My general agreement with tenants is that they are responsible for rent and utilities until I get it re-rented. That usually happens within a month. My advice in the future is never sign a lease agreement longer than a year, especially in California. You are giving the tenant all the power.

More importantly stop being afraid of vacancy. Leases do nothing to ensure a tenant stays long term. I have had tenants break leases after 6 months and I have had tenants on month-to-month agreements stay 10+ years. People move when they want to or need to move. 

@James Hsia , in California, you will have pretty limited options as to what you can do.  Some of the ideas mentioned above in other states are simply not available or permitted in California.  You might be able to keep some of the security deposit, but this depends on your lease agreement and other important factors and deadlines.  The California Court system has a pretty good summary here: http://www.courts.ca.gov/1049.htm.

Originally posted by @James Hsia :
We were thrilled to find a tenant in California who was willing to sign a long term lease due to a project he was working on. The caveat was the rent was set at below market and fixed for the 5 yrs (rookie mistake).

The tenant just informed me he is planning to quit his job and will be breaking the lease. At this point what are my rights as a landlord? Do I have the right to keep his entire security deposit? Any suggestions or tips will be much appreciated!

Your rights? Whatever the law states you muat do in such case  as a lease break

First of all you CANNOT keep the deposit because they are breaking the lease. So get that out of your mind. A deposit is only for specific use in this situation. It’s used for damages. However there are specific ways a that you can keep the deposits other than damages but it’s specific reasons. Unpaid rent is one. 

In Ca. a landlord is required by law to mitigate in case the tenant breaks the lease.  

Now be careful as  you cannot mitigate and change the lease terms  by asking for higher  rent amount or shorter lease term from the new replacement tenant. You can only offer the  lease at the same terms as your current lease because that’s the lease you’re mitigating. Once you ask for different terms you have a different lease and the tenant can walk away due to this violation. So you can only mitigate the 5 year at x amount. Anything else is a different lease. 

What I would do is tell the tenant he needs to give you notice that he is breaking the lease and the the timeline of their departure. Let them know that they are still liable to pay the rent after they surrender the property ( as long as the terms are still the same) until you find a replacement. You also are required to actively search for tenants. You can deduct any costs associated with the mitigation. So you can charge for any advertising or agent commissions if you use a agent. 

You need t give the a notice to do a preliminary walk through two weeks before the surrender date. They are not required to do this and you are not required to do it unless they want to

Once they surrender the property you have 21 days in which to charge back damages and send a itemized letter of charges and any refund minus deductions. 

If you miss the 21 day cutoff the tenant can legally demand ALL their deposit regardless of the damages and amount of damages.

You need to remember that it’s August. The rental market slows down. If this guy isn’t leaving for another 60/90 days  you’re landing smack flat in October November which are gonna be a nightmare to find good tenants. Trust me I know.

What I would do

Start advertising the rental. NOW. Like today now. Call a agent and have them start to look for tenants. I think it costs about $400 for each agent. You can offer more to the tenants agent to sweeten the pot. Either way charge all costs back the tenant. 

Don’t go by what the agent says about the tenants they represent. Truthfully they don’t know crap abut them. So you’re due diligence. I hope you have a qualification rule set for your rentals. If you don’t.    Get one. 

Oh and NEVER EVER EVER do a lease for 5 years on a rental. You must be out of your mind offering such terms.  I wouldn’t never consider anything over a year. and believe me I had people ask for 2-3 year terms. No thank you.  After that year  it’s month to month only. If they are worried about a rent raise write in a guarantee 12-18-24-36 month no rent raise guarantee. But I wouldn’t even do that. After the year lease it’s month to month and if I need to raise the rent I raise the rent

Thanks for the insight & advise, this helps alot! 

Originally posted by @Rob D. :
Originally posted by @James Hsia:
We were thrilled to find a tenant in California who was willing to sign a long term lease due to a project he was working on. The caveat was the rent was set at below market and fixed for the 5 yrs (rookie mistake).

The tenant just informed me he is planning to quit his job and will be breaking the lease. At this point what are my rights as a landlord? Do I have the right to keep his entire security deposit? Any suggestions or tips will be much appreciated!

Your rights? Whatever the law states you muat do in such case  as a lease break

First of all you CANNOT keep the deposit because they are breaking the lease. So get that out of your mind. A deposit is only for specific use in this situation. It’s used for damages. However there are specific ways a that you can keep the deposits other than damages but it’s specific reasons. Unpaid rent is one. 

In Ca. a landlord is required by law to mitigate in case the tenant breaks the lease.  

Now be careful as  you cannot mitigate and change the lease terms  by asking for higher  rent amount or shorter lease term from the new replacement tenant. You can only offer the  lease at the same terms as your current lease because that’s the lease you’re mitigating. Once you ask for different terms you have a different lease and the tenant can walk away due to this violation. So you can only mitigate the 5 year at x amount. Anything else is a different lease. 

What I would do is tell the tenant he needs to give you notice that he is breaking the lease and the the timeline of their departure. Let them know that they are still liable to pay the rent after they surrender the property ( as long as the terms are still the same) until you find a replacement. You also are required to actively search for tenants. You can deduct any costs associated with the mitigation. So you can charge for any advertising or agent commissions if you use a agent. 

You need t give the a notice to do a preliminary walk through two weeks before the surrender date. They are not required to do this and you are not required to do it unless they want to

Once they surrender the property you have 21 days in which to charge back damages and send a itemized letter of charges and any refund minus deductions. 

If you miss the 21 day cutoff the tenant can legally demand ALL their deposit regardless of the damages and amount of damages.

You need to remember that it’s August. The rental market slows down. If this guy isn’t leaving for another 60/90 days  you’re landing smack flat in October November which are gonna be a nightmare to find good tenants. Trust me I know.

What I would do

Start advertising the rental. NOW. Like today now. Call a agent and have them start to look for tenants. I think it costs about $400 for each agent. You can offer more to the tenants agent to sweeten the pot. Either way charge all costs back the tenant. 

Don’t go by what the agent says about the tenants they represent. Truthfully they don’t know crap abut them. So you’re due diligence. I hope you have a qualification rule set for your rentals. If you don’t.    Get one. 

Oh and NEVER EVER EVER do a lease for 5 years on a rental. You must be out of your mind offering such terms.  I wouldn’t never consider anything over a year. and believe me I had people ask for 2-3 year terms. No thank you.  After that year  it’s month to month only. If they are worried about a rent raise write in a guarantee 12-18-24-36 month no rent raise guarantee. But I wouldn’t even do that. After the year lease it’s month to month and if I need to raise the rent I raise the rent


I would basically write off this tenant and then offer a different lease with different terms to beingnyirself up to market rate. I would never do a 5 year lease. As you found out it’s basically pointless if the tenant wants to leave. 
I would go as far as onlynoffering month to month with a guaranteed in writing I rent raise for 12/14/16 whatever months. This way if it doesn’t work out you’re 30/60 days away from moving on. 


Originally posted by @James Hsia :
Thanks for the insight & advise, this helps alot! 

Originally posted by @Rob D.:
Originally posted by @James Hsia:
We were thrilled to find a tenant in California who was willing to sign a long term lease due to a project he was working on. The caveat was the rent was set at below market and fixed for the 5 yrs (rookie mistake).

The tenant just informed me he is planning to quit his job and will be breaking the lease. At this point what are my rights as a landlord? Do I have the right to keep his entire security deposit? Any suggestions or tips will be much appreciated!

Your rights? Whatever the law states you muat do in such case  as a lease break

First of all you CANNOT keep the deposit because they are breaking the lease. So get that out of your mind. A deposit is only for specific use in this situation. It’s used for damages. However there are specific ways a that you can keep the deposits other than damages but it’s specific reasons. Unpaid rent is one. 

In Ca. a landlord is required by law to mitigate in case the tenant breaks the lease.  

Now be careful as  you cannot mitigate and change the lease terms  by asking for higher  rent amount or shorter lease term from the new replacement tenant. You can only offer the  lease at the same terms as your current lease because that’s the lease you’re mitigating. Once you ask for different terms you have a different lease and the tenant can walk away due to this violation. So you can only mitigate the 5 year at x amount. Anything else is a different lease. 

What I would do is tell the tenant he needs to give you notice that he is breaking the lease and the the timeline of their departure. Let them know that they are still liable to pay the rent after they surrender the property ( as long as the terms are still the same) until you find a replacement. You also are required to actively search for tenants. You can deduct any costs associated with the mitigation. So you can charge for any advertising or agent commissions if you use a agent. 

You need t give the a notice to do a preliminary walk through two weeks before the surrender date. They are not required to do this and you are not required to do it unless they want to

Once they surrender the property you have 21 days in which to charge back damages and send a itemized letter of charges and any refund minus deductions. 

If you miss the 21 day cutoff the tenant can legally demand ALL their deposit regardless of the damages and amount of damages.

You need to remember that it’s August. The rental market slows down. If this guy isn’t leaving for another 60/90 days  you’re landing smack flat in October November which are gonna be a nightmare to find good tenants. Trust me I know.

What I would do

Start advertising the rental. NOW. Like today now. Call a agent and have them start to look for tenants. I think it costs about $400 for each agent. You can offer more to the tenants agent to sweeten the pot. Either way charge all costs back the tenant. 

Don’t go by what the agent says about the tenants they represent. Truthfully they don’t know crap abut them. So you’re due diligence. I hope you have a qualification rule set for your rentals. If you don’t.    Get one. 

Oh and NEVER EVER EVER do a lease for 5 years on a rental. You must be out of your mind offering such terms.  I wouldn’t never consider anything over a year. and believe me I had people ask for 2-3 year terms. No thank you.  After that year  it’s month to month only. If they are worried about a rent raise write in a guarantee 12-18-24-36 month no rent raise guarantee. But I wouldn’t even do that. After the year lease it’s month to month and if I need to raise the rent I raise the rent