My tenant wants to break his 12 month lease 4 months into the contract. What are my options and how have any of you handled similar situations? Do you refund the security deposit? what about the last months rent that was paid up front? Thanks for any insights!

Hi Jared,

What are the terms in your lease regarding if the tenant breaks the lease? Please tell me you have something in the lease that covers this! Different states have different laws so you'll have to check with someone who is familiar with landlord/tenant law where your rental is. We recently had a tenant break their lease in one of our properties in Texas. Per the lease agreement, they had to continue paying rent for the remaining portion of the lease until the property was re-rented. We had to make an honest effort to get the property rented, and we did but from the time they moved out until the time we go the property re-rented it was two months, so they were/are responsible for the rent for those two months. Again, you need to check the laws in your state and the terms of your lease. 

If your lease doesn't spell out what happens if a tenant breaks their lease then you may have to consider this an expensive lesson on having a thorough lease agreement. Regarding the security deposit and last month's rent, the same statement applies, you'll have to check the local laws. Some states will not allow you to use the security deposit toward missed rent, some states will require you to. 

It may be worth paying a couple hundred dollars to meet with a RE attorney and have them go over your lease, let you know what your options are with this tenant, and provide you with a more complete lease agreement to use in the future.

Best of luck!

Eric

I'm usually a stickler for contract, as far as my tenant is concerned. They signed a lease, and they will abide by it or face the consequences. However, there are a few considerations here:

1. Can I easily re-rent this place?

2. Does the lease end in the middle of winter? Apartments are often harder to rent in cold weather.

3. Is this a tenant a pain to deal with? Does s/he not pay rent on time, break things, park in the wrong spot, or get the police called often?

4. Does the tenant have a good job? You may be able to garnish wages after a deficiency judgment. Did you get your tenant's bank and job info as part of the application?

Your state's law will always govern first, then your lease, if your lease allows the landlord to deduct unpaid rent from the security deposit. As a side note, most state laws don't recognize the payment of "last month's rent" -- it's generally characterized as an additional security deposit that will not be refunded if last month's rent isn't paid. 

Here's an interesting tidbit about "first and last month rent": in Ohio, collection of a security deposit in excess of the rent (i.e., a deposit plus "last month rent") requires the landlord to pay 5% interest to the tenant, paid directly to the tenant annually.

Before going to a lawyer and spending money just talk to your tenant. Try to work out an arrangement.

Would you be willing to let him walk if he forfeits the security deposit? If so see if he is ok with it. Most reasonable people in his situation would agree to that. 

This is a people business it is all grey, not black and white.

Yeah, there's no need to be totally inflexible here if you're a decent landlord and don't have trouble renting places. I've had people move out in the middle of the night and I don't usually go after them as there's not much reward to be had.

That having been said, never, ever make a deal with a tenant that allows them to skip a rent payment in exchange for you deducting from the security deposit. You don't let them slide unless you have the keys in hand and an empty unit. I've had situations turn into eviction scenarios because the tenant tells me they're moving out, then they don't, then they owe two month's back rent and will never catch up.

Originally posted by @Jared Caplinger :

My tenant wants to break his 12 month lease 4 months into the contract. What are my options and how have any of you handled similar situations? Do you refund the security deposit? what about the last months rent that was paid up front? Thanks for any insights!

 Hi Jared: What is the reason he wants to break his lease? That would probably be a factor in my decision as to how to handle this. Hope you have time to let us know.

You need to understand the lease that has been signed. Then you can decide if you want to enforce it to the letter of the contract or if you want to give some leeway. I allow people to break the lease with only 30 days notice with no penalties but my places are very easily rentable and I know I can get another tenant very quickly. Read the lease and assess. 

I am going thru the same situation right now with a tenant.  Fortunately I've been down that road before and my lease has a section that deals with it.  I charge a $500 "break the lease fee" plus reasonable advertising.  They have to continue to pay the rent and utilities until I am able to rent it.  The current tenant wasn't very happy but oh well it's a business and I'm not the bank of dad!  They thought I should just let them move out because they are a young couple just starting out.  I told her I was an old fart that had a loan!  She got indignant with me and started saying "so what will you do if we don't pay you"?  "I will take you to court and then garnish your husband's paycheck.  How's the Sheriff going to take it when one of his jailers (husband) has a rock on his paycheck"?

James I have in my lease a two month early termination fee, which I have them agree on it...

Early Termination Fee/Liquidated Damages Addendum

I agree, as provided in the rental agreement, to pay $ __________________ (an amount that does not exceed two months' rent) as liquidated damages or an early termination fee if I elect to terminate the rental agreement and the landlord waives the right to seek additional rent beyond the month in which the landlord retakes possession.

OR

I do not agree to liquidated damages or an early termination fee, and I acknowledge that the landlord may seek damages as provided by law.

@James Wise undefined

My question is: I agreed to return their security deposit, but not the last months rent which was prepaid as liquidated damages...I was able to find quickly another tenant not even 1 week in their last month after they moved out. Do I have to give them any sort of receipt or charge?

Originally posted by @Pavlos Kasselouris :

James I have in my lease a two month early termination fee, which I have them agree on it...

Early Termination Fee/Liquidated Damages Addendum

I agree, as provided in the rental agreement, to pay $ __________________ (an amount that does not exceed two months' rent) as liquidated damages or an early termination fee if I elect to terminate the rental agreement and the landlord waives the right to seek additional rent beyond the month in which the landlord retakes possession.

OR

I do not agree to liquidated damages or an early termination fee, and I acknowledge that the landlord may seek damages as provided by law.

@James Wiseundefined

My question is: I agreed to return their security deposit, but not the last months rent which was prepaid as liquidated damages...I was able to find quickly another tenant not even 1 week in their last month after they moved out. Do I have to give them any sort of receipt or charge?

After they vacate your property and you give them back their security deposit you should have them sign a form acknowledging that they are terminating the lease and agreeing to the payment of the last months rent and that they have received their security deposit back.

Originally posted by @James Wise :

Originally posted by @Pavlos Kasselouris:

James I have in my lease a two month early termination fee, which I have them agree on it...

Early Termination Fee/Liquidated Damages Addendum

I agree, as provided in the rental agreement, to pay $ __________________ (an amount that does not exceed two months' rent) as liquidated damages or an early termination fee if I elect to terminate the rental agreement and the landlord waives the right to seek additional rent beyond the month in which the landlord retakes possession.

OR

I do not agree to liquidated damages or an early termination fee, and I acknowledge that the landlord may seek damages as provided by law.

@James Wiseundefined

My question is: I agreed to return their security deposit, but not the last months rent which was prepaid as liquidated damages...I was able to find quickly another tenant not even 1 week in their last month after they moved out. Do I have to give them any sort of receipt or charge?

After they vacate your property and you give them back their security deposit you should have them sign a form acknowledging that they are terminating the lease and agreeing to the payment of the last months rent and that they have received their security deposit back.

 Awesome James, thats what I had in mind. Does it have to be a standard form or just type it up?