ending lease term to put another tenant that pays more

8 Replies

Hi,

i have tenants in a 3br apartment (three guys that shares). their lease doesn't end until 12/31, but one of them is getting engaged and wants to move out, along with the other two. The lease states if the lease is terminated voluntary early, then they forfeit the deposit (they have 2x month deposit) + 2 months of rent. They don't want to use this early termination clause, but I also have incentive that there is a strong candidate that wants to sign a lease on that apartment for $50 more per month. Is it a dangerous bridge to allow early termination of current tenant with more favorable clause (e.g. only forfeit deposits, they pay all legal fee to prep docs to break lease legally, etc.)? My concern is that if I do this with one tenant, if another tenant wants to leave before lease term end and I don't allow it, will it be deemed as favoritism, or as long as I have a formal documentation of mutual agreement there are no issues? Thank you for your help in advance.

You would have a hard time defending that early termination policy in court. 4 months worth of rent? No court is going to find in your favor. We give tenants the option: 1 month rent plus the deposit, assuming there's no damages, and they walk clean - no utilities, no mowing, etc. OR they can leave as soon as possible, we will try to re-rent but they are responsible for rent, utilities, maintenance until it is re-rented. We've only had a few early terminations but all have opted for the clean break.

I think you should re-think your early termination policy and make it more reasonable, and provide more than one option, because if you are in the US your responsibility as a landlord is going to be to make reasonable attempts to minimize the loss to the tenant by prudently putting it back up for rent. If you don't think you could re-rent it in 4 months - assuming you're not renting out some specialty penthouse on the Upper East Side - then you've got a bad place.

As a landlord myself, here's where these situations get dicey:

What if they don't all move out on the agreed upon date?

What if there is damage resulting from their stay or departure?

What about outstanding utility bills?

If it were me, I would have all three tenants sign an Addendum to the Lease which states that in order to allow them to terminate the lease early without the penalty, the following conditions are required:

1.  A satisfactory walk-through of the vacated unit on or before the termination date.  Define satisfactory as completely empty of their personal belongings and removed from premises; broom swept/clean; trash removed; refrigerator/cabinets empty.  Be detailed.

2.  No damage noted to the unit/property.

3.  Proof of utilities paid (some landlords discover that the property is being liened because the utilities were not paid for months before their departure).  

4.  That the early termination is predicated upon a signed lease by a new tenant who will assume the vacancy upon their immediate departure.  (This will document that there was no loss of income to you as a mitigating factor).

Just get it all in writing from both parties (exiting and entering) and do not release the security deposit until the current tenants have met all conditions.

Hope this helps.

I’d remind them of the lease they signed but tell them if they leave the place in good condition you will waive the 2 month penalty and just have them forfeit the deposit.  That seems like a reasonable amount and you are still coming up ahead with already having a new tenant lined up at higher rent.  

@JD Martin Yes agreed. I didn't write the lease, this was written by my former PM that i no longer use.  I actually wasn't aware we had 2 months of deposit until my new PM told me either. i wasn't trying to squeeze out 4 months of rents from someone, but my concern was voiding the lease from legal perspective.  In your first option, how do you ensure that there are no damages beyond normal wears and tears, or go after the tenants if you found damage? 

@Patricia Steiner yes I was going to do something similar to what you suggested (and have a lawyer prep a document that outlines these, which the cost will be paid by the tenants).  So as long as there is a mutual agreement with tenants, there won't be a legal issue or deemed as "favoritism" to let a tenant out early from their lease? My no.1 concern here is if i sign this agreement and let them out early, if there are other tenants that wants to get out of lease in the future and i tell them no, could this be deemed "favoritism"?

You're the owner so you can do whatever you want to do AS LONG AS you do not discriminate based on the Fair Housing Criteria and you follow your state's landlord/tenant laws.  The reason I recommended noting that a replacement tenant was moving in immediately was to document that you weren't letting "male tenants" get out of a lease early with no penalty - and then later you get hit with a discrimination claim because that person was female, another race, gender, whatever.  That's the liability that you want to avoid.  Document, document, document...and you're good to go.

(And, by the way...this never happens to me - having that tenant standing by to pay me more rent!  With that luck, please buy lottery tickets - lots of them!  Congrats).

@Patricia Steiner omg i see.. good point. do i need to document that in the document i'm signing with the tenant to break the lease, or just document as note somewhere on my records? Do you think i should also note that the replacement tenant is planning to pay more than the current tenant?

That particular tenant applied for a different property i had few months back but passed on it because the rent was a little higher than this 3br unit, but not desperately looking for a 3BR i guess!

@Michinori Kaneko

I would just note on the Contract Addendum that item #4 I referenced earlier; that's all that is needed. Then you'll have your new lease with the new tenant as documentation that in fact a new tenant was signed and for a price equal or greater (actually greater) than what the previous tenants were paying. You will also want to document that the three tenants had requested early termination; have them make a formal request to you in writing (email, text) so that there is no doubt that you are accommodating their request and not terminating them for a higher paying tenant.

So, this order:

1. Tenants make request for early termination in writing to you.

2. You document a Lease Addendum (just a document that states at the top Lease Addendum to Lease Dated _____) with the conditions for early termination.

3.  Do a final walk-through of the property; take photographs.  If all is well, return security deposit per your state laws.  If not, deduct for damages per your state laws.

4.  New tenant, new lease, new price.  All good.

You've got this!