Tenants Breaking a Lease? Do You Know All Your Options?

As a landlord, do you know if your current Agent is maximizing the protection and minimizing the risks you have in a Break Lease situation?

Do they clearly explain the options that are available to you?

Do they simply do what’s easiest and less challenging for them?

Long-Term rental leases are designed to give both the Landlord and Tenant stability and clarity on the length of occupancy, enabling there to be surety on accommodation for the Tenant and rental income for the Landlord.

The implications of a lease being broken early by a Tenant are significant for a landlord, these include, but are not limited to;

  • Loss of rental Income.
  • Unplanned costs for re-marketing the property for rent.
  • Additional letting fees charged by the Agent for re-letting the property.
  • Stress caused by the sudden change of plans.
  • Costs incurred if the break lease fee must be pursued through the tribunal.
  • Costs associated with preparing the property for re-letting following a tenant’s departure. (Carpet Cleaning, Painting, Minor repairs).

For traditional unfurnished properties, most Letting Agents would utilize the industry standard clause as below;

An original lease that was for a fixed term of 3 years or less, the follow is usually stated within the Lease:

  • An amount equal to 6 weeks rent, if less than half the fixed term has expired.
  • An amount equal to 4 weeks rent, if more than half the fixed term has expired.

Further details on the implications of breaking a lease early can be found here.

Simple and Straight Forward!

However, by using the right forward-thinking Agent, like Property Providers, who helps you understand that there is an alternative option to the above which is designed to protect the Landlord from the impact of an unexpected Break Lease. Particularly one that may occur in a property that is either Furnished, or unique in its offering, which may limit the size of the market to find a suitable new tenant within industry standard timescales.

The table below shows the financial impact utilizing the alternative Break lease clause could have for a landlord. This is based on the rent being $1000 per week. The landlord being charged a two-week letting fee, $250.00 Marketing fee (Both plus GST) and the property being vacant for 4 weeks.

Contribution from tenants Break Lease Clause
Costs incurred by Landlord Amount Break Lease fee 6 Weeks Break lease Fee 4 Weeks Alternative Clause
Loss of rent $4,000.00 $6,000.00 $4,000.00 $4,000.00
Re-Letting fee $2,200.00 $0.00 $0.00 $2,200.00
Marketing Fee $275.00 $0.00 $0.00 $275.00
Total Costs / Contribution $6,475.00 $6,000.00 $4,000.00 $6,475.00
Landlord shortfall $475.00 $2,475.00 $0.00

 

This alternative option brings additional benefits and protection to the landlord, such as;

  1. An unspecified number of weeks rent payable by the vacating tenant.
  2. The tenant remains liable for rent until a new lease commences
  3. The tenant also must pay the Letting Fee and Marketing Fees usually charged to the owner.
  4. The above terms do not vary, regardless of the length on the fixed term has expired.

Due to many agents not being involved with Furnished rental property, due to the perception it’s ‘Too Hard” or “Doesn’t fit within our standard requirements”. These are key reasons why Property Providers is Sydney’s leading Agent in that growing sector of the rental market.

See more about how Property Providers are breaking the mould of the traditional Real Estate Agent here

Property Providers has significant experience in this area and as many of the properties they manage are both furnished and of high quality, they give their landlord the option to incorporate the alternative break lease Clause into their Long-Term Leases to ensure as much protection as possible for their Clients.

This clause has been recently tried and tested in a Tribunal hearing and judgement was awarded to the landlord, which was a challenging claim, as the landlord had terminated the lease early, due to a breach by the tenant, but was still able to have the break lease clause applied. They have also been able to favorably use the impact of this clause in negotiations with tenants, who were intending to take the landlord to the Tribunal over other issues to seek a termination order.

As a landlord, do you really know if your current Agent has maximised the protection you have in a Break Lease situation or do they simply do what’s easiest and less challenging for them? Ask yourself the question, what has triggered the tenant to want to break the lease. Most executive and corporate tenants leave due to being unhappy with either the property or the managing agent not responding to issues professionally or efficiently.

Sometimes, it can be very beneficial for an independent 3rd party to become involved in situations where two parties are at a stalemate in negotiations over a break lease dispute, rather than going through the expense and time-consuming process of the Tribunal. Property Providers are offering to assist in acting as a mediator in those situations, for any new properties they are instructed on that are experiencing such an issue.

Should you like to understand more about how Property Providers can not only help generate a higher yield for your property, but how they have developed greater protection for their clients, please call us on 02 9969 7599 or email us at help@propertyproviders.com.au

 

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General Advice Warning: The information in this article is of a general nature only and does not take into account your particular circumstances. Any financial, legal or other matters in this information is based on Property Provider’s interpretation of the existing law at the time and should not be taken as constituting professional advice. Property Providers and its officers and agents has taken every effort to ensure the accuracy of this information and disclaims all liability (except for the liability which can’t be excluded by law) for any error, omission, inaccuracy or loss or damage suffered by any person directly or indirectly through relying on this information. If you’d like to know more about licences and leases and which might be appropriate for your property arrangements with your guests, please contact Don Binkley and the Property Providers team on +612 9969 7599.