Do you add early termination clause in rental lease?

Question

First time renting a property, so please forgive me for asking basic questions. I looked into a few online lease documents and I can't find the early termination clause in any of those. So curious what other landlords generally follow. Could you please share the sample text for that?

Thanks in advance.

Nathan Gesner · Answer

I use a separate addendum. I require them to give 30 days notice and pay a termination fee equal to one month of rent. Then they have to let me market and show the rental to potential renters with 24 hours notice. Over 80% of my renters accept this.

If they don't accept it and just leave, you should clean the place up and find a new renter as quickly as possible. Then hold the departing tenant responsible for any lost rent, cleaning, repairs, or other charges. Deduct from their deposit and charge them anything that's not covered. In most cases, the deposit covers the vacancy and the turnover costs and I don't really lose anything.

Marcus Auerbach · Answer

Don't add a clause, you are sending the wrong signal. You can always negotiate an early termination. We usually agree, but ask for one month extra rent.

And don't write your own lease. Do some research you should be able to buy a state specific lease for a couple bucks. Also you can use the template from BP.

Scott M. · Answer

You should. More importantly you should stop looking at leases online and focus your efforts on a great local RE Lawyer and hire them. You should then buy their lease. That lease will have been used in eviction cases for years, all sorts of disputes and added too and massaged by the lawyers to fit what they need. A lease is a legal contract. This is worth and part of the investment in the world of real estate investment you are now in...time to invest in more than just the house. The lease, like the house, is an asset.

JD Martin · Answer

We have one but it is a separate addendum to the lease if/when a tenant requests such. We offer two options: first is one month rent + deposit, assuming no damages, and tenant walks away clean with no additional responsibilities. Second is tenant vacates as soon as possible, and remains responsible for timely rent payments, utility payments, lawn care, cleaning, etc during the period that we prepare and attempt to re-let the unit. We've only ever had a few early terminations, and no one has ever opted for option #2 because the first option is a clean break, known costs, and only costs them a month of rent, assuming they haven't damaged anything.

Theoretically, we have more exposure with Option #1, because if the unit hasn't re-let within that 2 month window we are losing money, but we have never had a vacancy longer than 2 weeks on a property that wasn't being rehabbed so we consider it low-risk.

Personally, I find it better to offer the tenants more than one option, such that it becomes their decision to pay the extra month+deposit and walk away rather than claiming they were strong-armed into it should they choose to challenge it later in court.

Theresa Harris · Answer

I would. Otherwise what is the point of having a lease with a set term?

John Underwood · Answer

That would be breaking my lease. I usually charge 1.5x the rent for a deposit or I get first, last and deposit. So they lose extra money if the break the lease. I state they forfeit all money received if they break the lease.

Mindy Jensen · Answer

I'm the one who coordinates the lease documents and annual updates with attorneys for BiggerPockets.

We did not initially include a lease break clause or amendment, because a lease is a legal document and by signing it, the tenant is saying they will abide by the terms, which are to pay the entire rent every month for the entire term. If they move out, they're still obligate to pay the entire amount for the entire term.

Due to so many people requesting this form, we are now adding a Lease Break Amendment to the lease documents for this year which gives the landlord the option of allowing this to happen for a fee.

Michael K Gallagher · Answer

@Nathan G. This is a solid policy. Similar to the one we use

Jim K. · Answer

No, I do not have an early termination clause. But please bear in mind the following:

1. I'm a specialized landlord in long-term C-class housing, very consciously angling to get long-term tenants who, in addition to going through extensive background checks, have already been thoroughly vetted over years through employment by our local major health care providers here in Pennsylvania.

2. The number of people who have terminated early on me is less than 2.5% of the total number of people who have been my tenants.

3. In each case the tenant asked for an early termination, it's because something major happened in their lives that was clearly outside their control.

4. Only in very rare instances do I have to actively advertise an open property these days. Instead, I have a waiting list.

5. I have a small, self-managed portfolio and in addition, I am my own handyman and handle almost all aspects of my rehabs and maintenance. Please read my profile for more information.

6. I'm pretty sure my life and employment and income goals are significantly different from what many people want who are getting into real estate. My business model most certainly can't scale past 25 properties.

7. If you're going to do what I do for whatever reason, please MAKE SURE YOUR BACKGROUND CHECKS AND VETTING PROCEDURES go well beyond the bare minimum. Sending the tenants through a computer service like TransUnion SmartMove. is NOT ENOUGH.

8. 3+ years full-time uninterrupted employment with a nationally-ranked hospital chain says a great deal about a person's character. Health care employment is carefully set up to weed out liars and cheats. This has been a huge benefit to us.

Joe Splitrock · Answer

@Indrani Karmakar just because you don't have an early termination clause, doesn't mean you can't have an early termination policy. I believe having the clause could encourage lease break, but have a policy ready in case someone approaches you about breaking their lease. I have had people approach me about breaking their lease and I just said no, so they ended up not breaking their lease. In other cases the lease break was unavoidable due to job change out of the area and I sent them my policy.

We have two options for lease break and which one we pursue depends on the circumstances (tenant situation and time of year). Option one is we require the tenant to pay rent until a new tenant is occupying, plus we require an additional one months rent as a releasing fee. Alternately we charge 3 months rent and they get to just walk away.

I my experience a lease break charge of 2-3 months rent is what most people charge. This accounts for 1-2 months of vacancy and one month of rent as compensation for leasing. Companies who specialize in leasing will generally charge 1 month as a leasing fee, so this is the market rate for the service.

Do you add early termination clause in rental lease?

Do you add early termination clause in rental lease?

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