Tenant Backing Out of a 2 Year Lease After 3 Months!

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Tenant Backing Out of a 2 Year Lease After 3 Months!

Caleb Anderson
Rental Property Investor · Locust Grove, GA · Member since 2018 · 78 posts · 19 votes

Hey BP community!

So my tenant is backing out of their 2 year lease, and they've only been there 3 months. The reason for leaving is "getting married and moving in with new spouse". My cash investor owns the home, and I was handling management and money organization piece. The tenant has been great so far with no complaints. Trying to get some feedback and ideas on best ways to handle the situation. 

First thought was to- My party keeps security deposit. -Have tenant pay rent for the current month. -Have them pay cost of finding a new tenant.

Myself and investor were also considering selling the property, which we would make a profit from. We already have other properties that look interesting that we were planning on going for anyways. I know the tenant is responsible for the lease, but them leaving in the situation we are in almost seems like a good thing.

Thanks for any help! 

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Nathan GesnerBusiness Member
Moderator
Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
7y

Of course he's been great. He's only lived there three months which is hardly time to screw up!

Your lease should include a penalty for early termination. It sounds like you're missing that so the next option is to simply enforce the existing lease. That means you notify the tenant - in writing - that they are responsible for the full term of the lease or until a replacement tenant takes over, whichever occurs first. You (or the owner) have a legal obligation to make a "good faith effort" to procure a new tenant. Once that tenant takes over, you have to release the old tenant.

The other option is to negotiate something new with all parties concerned. For example, you could contact the tenant and tell him he's responsible for the remaining 21 months but you're willing to release him if he pays two months as a penalty. Make him pay the penalty fee up front! Don't offer to take it out of his deposit because he may fail to turn the unit over in good condition and then you've lost all leverage.

Pay the termination fee and sign a written agreeement

After he vacates, inspect for cleaning and repairs

Apply the deposit and/or refund, as necessary

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  • Nathan GesnerBusiness Member
    Moderator
    Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
    7y

    Of course he's been great. He's only lived there three months which is hardly time to screw up!

    Your lease should include a penalty for early termination. It sounds like you're missing that so the next option is to simply enforce the existing lease. That means you notify the tenant - in writing - that they are responsible for the full term of the lease or until a replacement tenant takes over, whichever occurs first. You (or the owner) have a legal obligation to make a "good faith effort" to procure a new tenant. Once that tenant takes over, you have to release the old tenant.

    The other option is to negotiate something new with all parties concerned. For example, you could contact the tenant and tell him he's responsible for the remaining 21 months but you're willing to release him if he pays two months as a penalty. Make him pay the penalty fee up front! Don't offer to take it out of his deposit because he may fail to turn the unit over in good condition and then you've lost all leverage.

    Pay the termination fee and sign a written agreeement

    After he vacates, inspect for cleaning and repairs

    Apply the deposit and/or refund, as necessary

    The DIY Landlord Book4.7243 Reviews
    WebsiteView Page
    8Reply
  • Jaysen Medhurst
    Rental Property Investor · Greenwich, CT · Member since 2015 · 4k+ posts · 2k+ votes
    7y

    @Caleb Anderson, keep in mind this is all subject to your local tenant laws and what's in your lease. That being said:

    Yes, the tenant pays the current month and you keep the security deposit. I don't think you can have them pay the cost of finding a new tenant, unless that's in the lease and allowed under local/state law. Would be pretty hard to enforce, I think.

    Sounds like pursuing a sale at this time is a good idea. Most buyers prefer to get a property empty.

    1Reply
  • Thomas S.
    Member since 2016 · 13k+ posts · 12k+ votes
    7y

    When our tenants break a lease they are responsible till replacement tenant moves in and responsible for all costs associated with finding replacement tenant. Deduct your costs from the tenants deposit.

    2Reply
  • Tom S.
    Real Estate Investor · Burlington, VT · Member since 2010 · 2k+ posts · 1k+ votes
    7y

    @Caleb Anderson  Agree with Thomas above, if you want to replace him with new tenants, typically it's all costs and rent associated with it (however, check your state laws).  Here in VT, if someone moved out in the middle of winter and it took me three months to get a replacement, that tenant still owes me three months rent, plus utilities to keep the place heated.

    Obviously if you don't want another tenant, well then it worked out pretty well for you!

     - Tom

    2Reply
  • Grant Rothenburger
    Investor · Taylor Mill, KY · Member since 2016 · 2k+ posts · 964 votes
    7y

    @Caleb Anderson What does the lease say about early termination?

    1Reply
  • Albert Hasson
    Investor · Paradise Valley, AZ · Member since 2012 · 366 posts · 214 votes
    7y

    This has happened more times to us than I can count.  Tell them they are responsible for the rent until you find a suitable replacement tenant.

    Unless your lease or state laws dictate another course this is what I would do.

    1Reply
  • Dennis M.
    Rental Property Investor · Erie, PA · Member since 2018 · 6k+ posts · 9k+ votes
    7y

    On a side note avoid long lease terms . 2 years is way too long 

    4Reply
  • Albert Hasson
    Investor · Paradise Valley, AZ · Member since 2012 · 366 posts · 214 votes
    7y

    This has happened more times to us than I can count.  Tell them they are responsible for the rent until you find a suitable replacement tenant.

    Unless your lease or state laws dictate another course this is what I would do.

    1Reply
  • Caleb Anderson
    OP
    Rental Property Investor · Locust Grove, GA · Member since 2018 · 78 posts · 19 votes
    7y
    Thank you so much for the responses! My lease says he is required to give at least a 30-60 day notice. Outside of that he is required to pay the cost of finding a new tenant. I have spoken with tenant and we will quickly get something written up with all of the terms to make sure they don't pull a fast one. My question is then- are 2 year leases too long? How long is too long? Thanks!
    0Reply
  • Dennis M.
    Rental Property Investor · Erie, PA · Member since 2018 · 6k+ posts · 9k+ votes
    7y

    @Caleb Anderson

    A year is too long . Don’t be fooled That

    Lease protects the tenant not you ! The shorter the better

    1Reply
  • Caleb Anderson
    OP
    Rental Property Investor · Locust Grove, GA · Member since 2018 · 78 posts · 19 votes
    7y
    @Dennis M. Heard!
    0Reply
  • Caleb Anderson
    OP
    Rental Property Investor · Locust Grove, GA · Member since 2018 · 78 posts · 19 votes
    7y
    @Nathan G. Thank you for the quick and very detailed response! I owe you at least 2 cups of coffee, 1 for each year of this rediculous lease.
    1Reply
  • Nathan GesnerBusiness Member
    Moderator
    Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
    7y
    @Caleb Anderson just one is fine. I'd like a dirty Chai, 20oz. Can you get it here by April?
    The DIY Landlord Book4.7243 Reviews
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    2Reply
  • Caleb Anderson
    OP
    Rental Property Investor · Locust Grove, GA · Member since 2018 · 78 posts · 19 votes
    7y
    @Nathan G. Yes. In a golden goblet coupled with doughnuts of the highest caliber.
    1Reply
  • Jon Lanclos
    Real Estate Broker · Houston, TX · Member since 2017 · 64 posts · 27 votes
    7y

    @Caleb Anderson I don’t think a two year lease is too long but I would go any longer - you want to be able to raise the rent on them if taxes increase in your area - have an attorney review your lease and make sure you are taking advantage of your states property code as it relates to landlords - each state is different - we have a lease break provision written into our leases - also a good real estate rental agent in your area can be worth their weight in gold - they will find better tenants (screen them all) and quickly put your house back on the market in instances like this

    1Reply
  • Thomas S.
    Member since 2016 · 13k+ posts · 12k+ votes
    7y

    I only use M2M and believe it is a screening tool to eliminate bad tenants. They know the landlord is in control with a M2M lease and will not rent. Term leases mean nothing to a tenant when they decide it is time to move.

    Don't forget you also charge the tenant for your advertising and all other expenses associated with finding a new tennat. It is your tenants fault that you are incurring those expenses and they are therefor responsible. A landlord should never be out of pocket when a tennat btreakes a lease.

    3Reply
  • Steve K.
    Realtor · Boulder, CO · Member since 2016 · 3k+ posts · 5k+ votes
    7y

    @Caleb Anderson Two year leases make sense in certain circumstances. We have some Class A properties with Dr./lawyer type couples renting who I happily sign 2 year leases on, with 10% escalation each year. They’re perfect tenants, I want to hold on to them as long as possible. Property managers usually take half or full months rent to place a new tenant, and there’s always at least a few weeks vacancy and make ready costs associated with churn, so less turnover the better. If you’re self managing, finding new tenants is by far the most time consuming part of the job so I try to avoid it and keep good tenants if at all possible. Depends on the type of property and tenant base, if you’re dealing with C- tenants in a state where evictions are expensive and take months, then M2M is a good way to go in terms of CYA and avoiding evictions, but for properties with good tenants in states with a landlord friendly eviction process, hold on to them as long as possible just include an escalator each year if you’re in an area with increasing rents.

    1Reply
  • Caleb Anderson
    OP
    Rental Property Investor · Locust Grove, GA · Member since 2018 · 78 posts · 19 votes
    7y
    @Steve K. Thank you Steve, that was very well said. I'll keep that in mind as the higher the quality tenant, the more likely I want to have a longer lease period. Not a guarantee, but guide.
    0Reply
  • Eric B.
    New to Real Estate · FL · Member since 2018 · 21 posts · 10 votes
    7y

    @Steve K. I would like some clarification on your escalating rents you built into your longer term leases.  Suppose the montly rent was $1500 with a 10% escalator/year.  Year 1 you charge 1500/mo.  Year 2 you charge 1650/mo?  Putting myself in a renter's shoes I would find that increase to be a hard pill to swallow.  

    Just as much as turning over a property between tenants is expensive for the property owner, moving is very expensive for a tenant.  Smaller increases with each new lease signing, on perhaps an annual basis that you would be forthcoming with prior to them moving in would seem to be less offensive to potential tenants.   Granted this is far less profitable to you.  

    I am more curious how to make the doctor/lawyer tenants take the medicine

    2Reply
  • Steve K.
    Realtor · Boulder, CO · Member since 2016 · 3k+ posts · 5k+ votes
    7y

    @Eric B. 10% is a little extreme, that’s probably atypical but in this case the rent was $2,000/mo, there were over 30 qualified applicants that applied, and rents had gone up 10% in the area the previous year, so the big increase was a function of supply and demand. The couple agreed to it without blinking, we added into the lease the rent would go up 10% year 2. They were requesting a 2 year lease, I explained I didn’t want to miss out on being able to increase the rent next year, just laid my whole investment strategy out for them and they understood. In other cases I’ve written into the lease more modest increases between year 1 and 2, such as $50. Just depends on the property, tenant and location. Our area is high demand, it’s hard to find a place to rent which helps negotiations tremendously. 

    3Reply
  • Steve K.
    Realtor · Boulder, CO · Member since 2016 · 3k+ posts · 5k+ votes
    7y

    @Eric B. just to clarify any increase would be negotiated and agreed upon plus income qualified before signing the original lease

    0Reply
  • Matt M.
    Specialist · Easton, PA · Member since 2018 · 1k+ posts · 2k+ votes
    7y

    @Thomas S.

    I’m curious as to how you make people who break lease and move out to pay until you find a new tenant. Do you go after them and seek a judgment?

    0Reply
  • Caleb Anderson
    OP
    Rental Property Investor · Locust Grove, GA · Member since 2018 · 78 posts · 19 votes
    7y
    @Matt Michaelson The lease should always have something set up to where there are terms as to how they can break the lease. As in- what happens if they break correctly or not. For instance, my tenant needs to give 6 weeks notice, a legitimate reason for leaving, and doesn't receive security deposit and must pay cost to find next tenant. If they do not follow those terms, I could pursue them for that legally. Tell me if I'm wrong guys, I don't claim to be an expert.
    0Reply
  • Matt M.
    Specialist · Easton, PA · Member since 2018 · 1k+ posts · 2k+ votes
    7y

    @Caleb Anderson

    I use Pennsylvania Association of Realtors (PAR) lease. We ask for 30 days and they lose their security. In my area, more often than not they break the lease because they don’t pay their rent. No sense in spending $ to file for a judgement they will never pay. Maybe we are to lax, but we’ve found that you can’t get blood from a stone. Take your crap and get out, so the next guy can move in.

    0Reply
  • Caleb Anderson
    OP
    Rental Property Investor · Locust Grove, GA · Member since 2018 · 78 posts · 19 votes
    7y
    @Matt Michaelson Hmm. Sounds like it is a tenant friendly area, but I get what you're saying. Maybe a higher security deposit is a solution if possible?
    0Reply
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