What’s the point in a lease?

General Landlording & Rental Properties
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What’s the point in a lease?

Barney Davis
Rental Property Investor · Jackson, MS · Member since 2019 · 33 posts · 9 votes

I have a tenant that signed a two year lease and is wanting out after the first year due to a pregnant wife. I discounted the rent from $1400 to $1350 if they signed a two year lease. I have a $1350 deposit. This happened before and a lawyer told me there’s not much I can do. So my question is, what’s the point in having a lease contract if they can just change their mind???

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Theresa HarrisPro Member
Member since 2019 · 15k+ posts · 11k+ votes
5y

What is the penalty for breaking the lease?  Often they are responsible for the rent until a replacement tenant can be found (and you need to do your best to find one in a timely fashion).  In the future if you do any discounts for a longer term lease (not a good idea unless you build in rent increases to the lease), do them at the very end of the lease.  So in this case their 24th month of rent would have been $150 and all of the other months $1400.

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    5y

    well you dont have to let them out.. there should be a buy out provision in your lease.. 

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  • Lien VuongBusiness Member
    Real Estate Agent · Boston, MA · Member since 2018 · 2k+ posts · 1k+ votes
    5y

    They are still legally obligated to honor the lease as it's a binding contract. They will have to offer you a buy out price, I would calculate their rent to be $1400 recapture of the discount, and make them responsible for the unit until it's leased out for any minimum of what you are renting for it today and ask them to pay any tenant procurement fees due to their change. 

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  • Barney Davis
    OP
    Rental Property Investor · Jackson, MS · Member since 2019 · 33 posts · 9 votes
    5y

    @Jay Hinrichs I like the sound of that. Can you give me an example?

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  • Barney Davis
    OP
    Rental Property Investor · Jackson, MS · Member since 2019 · 33 posts · 9 votes
    5y

    @Lien Vuong that makes sense. What type of buy out do you implement?

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  • Theresa HarrisPro Member
    Member since 2019 · 15k+ posts · 11k+ votes
    5y

    What is the penalty for breaking the lease?  Often they are responsible for the rent until a replacement tenant can be found (and you need to do your best to find one in a timely fashion).  In the future if you do any discounts for a longer term lease (not a good idea unless you build in rent increases to the lease), do them at the very end of the lease.  So in this case their 24th month of rent would have been $150 and all of the other months $1400.

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  • Scott M.
    Real Estate Broker · Rochester Hills, MI · Member since 2009 · 2k+ posts · 2k+ votes
    5y

    @Barney Davis did this lawyer also advise you on how to move forward?  Your lease contract should have a break clause so if someone leaves early there is an agreed upon process and fees that happens.  Do you have one?  If not, you still have a contract that they are breaking and you can sue, and would have a good chance of winning.  At that point it becomes a collection issue and your millage may vary greatly on that front.

    That aside, if you have a lease break clause, follow it.  If you don't, get one, immediately.  

    If you don't have that in your lease then you need to decide if both going through the courts and dragging them through the courts is worth it.  I would 100% recommend talking to them first and see if you can work out a solution.  In this hot market  you can have this home re rented again in no time right? 

    Time to focus on where you want to put your focus. Deescalate if you can and find an agreement.  Will be much quicker and more satisfying then fighting this in courts for the next few months/year of your life. 

    1Reply
  • Barney Davis
    OP
    Rental Property Investor · Jackson, MS · Member since 2019 · 33 posts · 9 votes
    5y

    @Theresa Harris thank you! I love the idea of giving the discount on the last month. Genius

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  • Patricia Steiner
    Real Estate Broker · Hyde Park Tampa, FL · Member since 2019 · 2k+ posts · 3k+ votes
    5y

    Manage to the lease.  That's what real estate business owners do.  Life changes for all of us and the reason the tenants can't just wave goodbye and walk is because of the terms of the lease.  And, that's the point.

    More importantly, fire your attorney...

    4Reply
  • Bill Gulley
    Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    5y

    I suggest you speak to someone locally, an attorney, another landlord that has experience, a real estate broker or management operation with a simple question, can a tenant break a lease under this condition?

    I believe all states have provisions for terminating a residential lease, examples include (but not limited to) a tenant called to active military duty or change in orders, the death of a tenant (releasing the estate) or of a co-tenant, medical conditions requiring special care or residential amenities, another situation could include ADA compliance after a life changing event. 

    All real estate is local, how a residential lease is enforced in an area may well be an opinion of that court. Contracts that we enter into can be enforced, generally, but when a contract becomes impossible to perform or where an unforeseen burden exists for either party, not contemplated at its making the court may set a contract aside. 

    I really doubt you will find your local Circuit Division Judge on BP. 

    Over the years I have found it best to negotiate a settlement and being reasonable, it's always better than going to court.

    I might suggest, since you reduced rents by $50 for a longer lease that you charge back that amount and treat it as an annual lease, you can also seek actual damages as you normally would.

    As you gain more experience you will have a better idea of what usual and customary is in your area. I might suggest too, that landlords do a quick monthly check of court dockets, findings and judgements concerning tenant/landlord disputes as they are handled in your area; it shouldn't be hard today with courts being online.

    Sometimes, a residential lease agreement simply puts a psychological seed in the minds of the parties to govern their relationship, there can be many valid reasons for either party to seek relief from the intended obligation under contracts.  Best of luck :)

    1Reply
  • Barney Davis
    OP
    Rental Property Investor · Jackson, MS · Member since 2019 · 33 posts · 9 votes
    5y

    @Patricia Steiner he’s not really “my attorney “. He did a closing for me one time. Haven’t used him again.

    DEFAULT. In the event of a default by Lessee, Lessor shall not be required to return any part or portion of the security deposit, but the Lessor may either retain the security deposit as liquidated damages or retain the security deposit and apply it against actual damage sustained by Lessor by reason of Lessee's default. The retention of the security deposit shall not be the only remedy to which Lessor is entitled but Lessor shall have all recourse against the Lessee provided by this lease and by law including, but not limited to, summary remedies, and all remedies shall be cumulative and non-exclusive. Lessee agrees to pay Lessor's reasonable attorney fees and expenses incurred in and about enforcing any of the terms of this lease, in collecting past due rent, and in recovering possession from Lessee, should the service of an attorney be retained by Lessor in so doing.

    This is what I found in my lease.

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  • Terrell Garren
    Rental Property Investor · Concord, NC · Member since 2016 · 1k+ posts · 3k+ votes
    5y

    M2M rental agreements all day long. Residents will move when they need to move.  Long term leases only hand cuff the owner.  M2M is the best thing I've learned in 12 years at the school of hard knocks. Additionally, you can deal with misbehaving residents relatively quickly; and they know it.

    4Reply
  • Patricia Steiner
    Real Estate Broker · Hyde Park Tampa, FL · Member since 2019 · 2k+ posts · 3k+ votes
    5y

    @Barney Davis

    Unless the lease states that the rent will be $1350 through termination and revert to $1400 should it terminate before lease end, you're stuck with $1350 for rent.  You can't raise it now or call it a penalty unless the contract specifically provides for it.  I don't believe in discounting or offsetting the rent - Never, Ever.  The rent is the rent.  And, it - for some reason - always leads back to regret.

    Here's a resource on breaking a lease in your state:  https://ipropertymanagement.co...

    Their reason is not an acceptable one for walking so all penalties apply.  You can continue to charge them rent until such time as you re-rent it and/or you can allow them to sublet it - both of these places the burden of finding a tenant on them.  It would be their best interest to make the property available for showing on a moment's notice and actively participate in finding you an acceptable tenant.

    I recommend having a serious conversation with them about the liability facing them for breaking the lease and the expectations for curing it. I would not return the security deposit.

    Hope this helps...

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  • Barney Davis
    OP
    Rental Property Investor · Jackson, MS · Member since 2019 · 33 posts · 9 votes
    5y

    @Patricia Steiner thank you ma’am for the help! 😊

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  • Linda Thomas
    Rental Property Investor · Allentown PA · Member since 2021 · 159 posts · 36 votes
    5y

    Add a buy out clause in your lease moving forward. I started adding one recently too. 

    0Reply
  • Will GastonPro Member
    Rental Property Investor · Columbia, SC · Member since 2010 · 1k+ posts · 2k+ votes
    5y

    @Terrell Garren I have a very successful large MFH investor friend that also only does M2M. Works awesome for him.
    How do you get quality tenants to sign a M2M lease when they don't know if you'll kick them out 30 days after they move in?

    0Reply
  • Barney Davis
    OP
    Rental Property Investor · Jackson, MS · Member since 2019 · 33 posts · 9 votes
    5y

    @Terrell Garren do you have a m2m lease agreement you could share?

    0Reply
  • Barney Davis
    OP
    Rental Property Investor · Jackson, MS · Member since 2019 · 33 posts · 9 votes
    5y

    @Linda Thomas what type of buy out clause? Can you give me an example? Thanks!

    0Reply
  • Terrell Garren
    Rental Property Investor · Concord, NC · Member since 2016 · 1k+ posts · 3k+ votes
    5y
    Originally posted by @Will Gaston:

    @Terrell Garren I have a very successful large MFH investor friend that also only does M2M. Works awesome for him.
    How do you get quality tenants to sign a M2M lease when they don't know if you'll kick them out 30 days after they move in?

    I tell them that I am in the long term agreement business and that I have had several residents on M2M for 8 plus years.  Turnover is a owner's biggest money loser.  Never had anyone flinch once we discuss it.

    1Reply
  • Terrell Garren
    Rental Property Investor · Concord, NC · Member since 2016 · 1k+ posts · 3k+ votes
    5y
    Originally posted by @Barney Davis:

    @Terrell Garren do you have a m2m lease agreement you could share?

     Sure. Beware, I drafted it, not a lawyer. BTW, somewhere long ago, I read that anything less than a year should be called a rental agreement and not a lease. 

    1. 1. LENGTH OF AGREEMENT

    This Agreement shall begin ________________________ and will continue month to month as long as the resident meets the obligations of this Agreement or termination notice is provided by either party.

    1. 2. TERMINATION

    This Agreement is automatically renewed from month to month, but may be terminated by either party giving to the other a 30-day written notice of intention to terminate. Should the Resident hold over beyond the termination date or fail to vacate all possessions on or before the termination date, Resident shall be liable for additional rent and damages which may include damages due to Owner loss of prospective new renters.

    2Reply
  • Barney Davis
    OP
    Rental Property Investor · Jackson, MS · Member since 2019 · 33 posts · 9 votes
    5y

    @Terrell Garren thanks!!!

    0Reply
  • Natalie Schanne
    Real Estate Agent · Princeton, NJ · Member since 2016 · 1k+ posts · 1k+ votes
    5y

    @Barney Davis - Good news! Real estate market is so hot you can probably get $1500/mo for your unit today. I’ve been astounded by the demand for my rentals. Literally hundreds of calls.

    I also have not had any success with discounted rate tenants staying the full term they promised, so I have a clause that accelerates the stated and accrued discount to immediately due upon termination, in addition to a 1-2 month termination/remarketing fee. (If you’re paying a PM or real estate agent a commission to place a tenant, they usually charge 1/2-1 months rent). Even if I do it myself, my time is still valuable.

    I usually offer that they will continue living there and paying rent and I will, with their permission, post it as available for rent. They will bring people through themselves to show the rental (so I don’t have to go there every time), and after someone applies and is suitable, I will release them from the remainder of their lease obligation after the new person is in and paying rent.

    I do not agree with month to month rentals only as a strategy. Turnover is our biggest expense / revenue loss in terms of vacancy and repairs. My rental market has strong and weak seasons. If I want to get top dollar for my rental, the lease should start sometime May-August. Anyone not rented by like September is usually cutting rental rate significantly. November-January is the worst in terms of rental rates because nobody wants to move in New Jersey.

    0Reply
  • Dan Maciejewski
    Realtor · PInellas County Largo, FL · Member since 2016 · 902 posts · 810 votes
    5y

    You've gotten some good, if conflicting, advice in here.  I'll just throw my two cents in, also.  

    If you're not using a lease drafted by an attorney with specific clauses that you have found helpful, you should look into getting one.  I use my state's Realtor lease and have a few addenda that I have found helpful -- it grows every year.

    To answer your question -- and this is something I let every client know -- a contract is only as good as you are willing to enforce it.  And what a judge will (how legal are the clauses?) enforce if it gets there.  If you put a 2 month lease break fee, are you willing to fight for it?  If not, don't put it in, just write month to month.  

    I only write 1 year leases so far.  I don't have an issue with a tenant breaking it, they just have to pay the fee.  Just like I don't get emotional about late rent -- they just pay the late rent fee.  In the future just make sure that that conversation is part of your intake at lease signing.  Let them know up front the clauses that you find most tenants have issues with, what the penalties are, and how you will enforce them.  

    If you are not going to enforce it, there is no point in having a contract.

    0Reply
  • Barney Davis
    OP
    Rental Property Investor · Jackson, MS · Member since 2019 · 33 posts · 9 votes
    5y

    @Natalie Schanne great advice! Thank you so much 😊

    0Reply
  • Curtis Mears
    Property Manager · Raleigh, NC · Member since 2014 · 728 posts · 596 votes
    5y

    @Barney Davis

    I have tenants break the lease often. In my state, I am required to use best effort to get a new tenant. I always let tenants know I will do my best to find a new tenant, but they are responsible for rent until a new lease is signed. Assuming they pay, which mine always have, you now have zero vacancy. Change your thinking, you have a place rented, you find a new tenant, and you have zero vacancy.

    This is why you have a lease.

    0Reply
  • Will Sifert
    Investor · Covington, LA · Member since 2012 · 517 posts · 317 votes
    5y

    @Barney Davis

    What everyone here has said is nice in theory, buy out clause, enforce the lease and make them pay till it’s rented by someone else etc... but the reality is if the people can’t afford the lease they probably don’t have much money. Good luck getting it out of them. So you pay attorney fees, get a judgement recorded against them... what you spent fighting it, is it worth your time and will it end up costing you more money then you get back? Just replace them with another renter and move on. Not to mention if you get that wrong person who gets pissed of and decides to stop paying and then you have to evict or destroys the place because they are pissed.

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