Being the savvy investor that you are, you just landed the perfect renter! You ran the necessary background checks, credit report, heck you even called their previous landlord and employer, and it all checked out perfectly! A few days later you signed on the dotted line and the one year lease was now in place. Three months into the lease the tenant gives you a call and says they need to move out. You being the savvy investor that you are know that a tenant cannot simply move out and end the lease when they please. They signed a contract and said they would pay you until the end of its term.
What are your options?
Option #1: Say yes, you should have a fee associated with breaking the lease early. Hopefully you mentioned that to them at the original lease signing.
Option #2: Say no, at the end of the day this quite frankly will likely make your tenant disgruntled. You may also open up a can of worms with your local state laws regarding breaking a lease. At the end of the day they did sign a lease and if everyone can simply walk away, then why would landlords have people sign leases in the first place right?
Outcomes:
Option #1: If you do have a lease breaking fee in place, this might be fine as you should have enough funds from the fee to cover your expenses as if the property was full until you find a new suitable tenant.
Option #2: Saying no is perfectly fine, just expect that they might be unhappy with you.
One way you both could be happy with the outcome:
Is there one way you both could be happy with the outcome? Your tenant gets out of the lease and you still get rental income coming in without missing a beat? The answer is yes.
"Secret" Option #3: Lease Assignment
Tenant Lease Assignment
What is a lease assignment? It is when a tenant transfers all obligations of the lease to another tenant. This means the old tenant no longer is responsible for paying rent and the new tenant takes over paying rent and any other obligations on the original lease.
This is a benefit given to your previous tenant and should result in NO WORK on your end. No vacancy should occur during this process. Your tenant should also be doing all of the leg work of finding a new suitable tenant. They will market and show the property to prospects and then if any interested parties wish to apply, they will need to go through your application process to be approved.
Once a new tenant is found your tenant should then proceed to move out if they have not already done so. After the property is empty of their belonging you can make the necessary repairs/cleaning as if you would otherwise. You will of course charge any repairs required against the current tenant’s deposit. Your current tenant will also need to pay rent up until the day the new tenant moves in.
The only catch in the process is most local state laws require you be no harder on the new prospect tenants your current tenant finds, in other words you can't make the application process more difficult. This of course is common sense, but in today's world we always need to restate the obvious.
Difference Between Lease Assignment and Subleasing:
A lease assignment is when a tenant transfers all obligations over to another tenant. This means the previous tenant has no remaining obligations to pay rent to you or maintain any terms on the lease agreement. Basically, they are free and clear from your wrath.
Subleasing is the same principal; your tenant finds a new tenant to move in and it results in no vacancy for you. The only difference is that you tenant is responsible for collecting rent from the new tenant and then getting that rent to you. If the new tenant does not pay the old tenant is responsible and thus gives you more leverage to be sure you will get paid.
What You Need to Do:
Depending on which options above sound the most appealing, you will need to put one of them into your lease. Maybe both of them? By putting this into your standard lease document you are setting yourself up to prevent the issues or at least prepare for them when they do occur.
Subletting is a nice option in that your current tenant will still be on the hook, however if the current tenant moves away do you think they will still have a vested interest even if a contract says they have too? At the end of the day if rent doesn’t get paid you out the funds and your going to be the one chasing down the new tenant and the old tenant. Maybe this isn’t as good a deal as it sounds? You can decide that on your own.
Assignment of lease is letting your old renter off the hook after they find you a suitable tenant. You are going to approve this new tenant and you decide who is “suitable”. Maybe this is best, are you really going to be able to get anything after your old tenant once they move out?
Another thought is maybe do the sublet option, but then act like it is an assignment of lease, confused yet? I am meaning don’t let your current tenant off the hook, but act like they are gone, until your new tenant gets so far behind or you lose all hope that you put pressure back on the old tenant to get the new tenant to pay you? All in all I would simply do a assignment of lease, I don’t think putting the old tenant on the hook is going to help you much. It will likely even lead to more issues down the road. Simply find a new renter and move on. It’s just cleaner and easier that way…
The Final Outcome:
When you put a lease assignment policy into your lease agreement, you are creating a system for your tenant to get out of the lease while still having a zero-vacancy option on your end. The tenant should be doing most of the work, so what do you have to lose?
Do you have a lease assignment in your leases that you use? Why or why not?
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