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???
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.
Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
5y
@Barney Davis I never do a two year lease on a new tenant. All the lease term does is protect the tenant. It removes your flexibility to raise rent or non-renew trouble tenants. Evictions are harder when a tenant is in a lease term. I also avoid discounting rent. Assuming you have rent listed at fair market value, there is no need to discount. I only discount on renewal of a proven good tenant. Even then the "discount" just means not raising rent very much.
Your lawyer is half correct when they say there is not much you can do. You can't force them to stay. If they leave, you need to make good faith effort to release and you once it is released, you can't keep charging the old tenant. That being said, you are entitled to compensation in the case of lease break that includes:
1. Rent and utilities for any days up until a new tenant moves in.
2. Releasing fees. This is compensation for your time or to hire a professional leasing company. This is generally one months rent.
3. Compensation for other losses such as them paying back the rent discount.
It doesn't matter if your lease contains a lease break clause or buyout terms on the lease. Lack of those clauses only means you don't allow it. That being said, you can still offer a lease break fee, which lets them out of the contract. Any contact can be modified with mutual agreement. Let the tenant know you do not allow lease break. If they persist, just explain they will need to compensate you for your losses and sign a lease break agreement. Present them with an agreement that has detailed charges. Let them know if they sign the agreement, they leave in "good standing" and will get a good reference. If they walk out before their term is up, it is breach of contract and you will pursue damages.
Investor · Covington, LA · Member since 2012 · 517 posts · 317 votes
5y
An off the topic suggestion about discounting rent. One thing that has worked well for me... For example if the rent you normally charge is $1750 a month. I advertise it for $1800 a month and tell them I will give them a $50 "on time" discount each month if rent is paid by the first. If so, they only have to pay $1750 and save $50. It's physiological, if they pay on time, you get the amount you wanted anyway. If the pay a couple days late they don't feel like they are being a charged a late fee, when in essence they are. Of course by the 7th or 10th or what ever date you choose there is actual late fees but you would be surprised how many people will pay "on time" to get that "discount".