When a tenant breaks a lease months before it expires, it usually means more headaches for the landlord. But there are some things you can do to limit your losses and make the most of this situation. In fact, depending on your individual circumstances, it may even be a good thing. Here are three things to consider.
If your unit rents below the market rental price, this could be a good time to increase the rent and improve cash flow.
This situation generally applies to long-term tenants who have been in your property for years and have not increased the rent in a long time (if ever). If you have long-term tenants breaking their lease, do a little research to find out what the current comparable rents are. Your early exit may not be that bad for your cash flow situation.
Negotiate with your tenant to pay a portion of the remaining rent owed
In many states, you have the right to sue your tenant for lost rent for the remainder of the broken lease (except in certain circumstances, such as military deployment). Use this fact to your advantage and tell your tenant that you will release him from his lease if he agrees to pay a portion of the remaining rent. For example, if your lease expires three months after you move in, you can put in writing that you will cancel your lease early if you pay 1 1/2 months rent. The advantage for them is that they don’t have to worry about you potentially suing them for lost rentals and they can rely on you for a good recommendation for future owners. The advantage for you is that you have a longer window to find a new tenant without losing money on the property.
Most states require the landlord to mitigate losses for which the previous tenant is liable.
What this means is that you can’t wait until the lease has expired, without trying to re-lease the property, and then suing your former tenant for all of the back rent. Therefore, once your tenant moves out, even if you broke your lease three months after the lease, you should actively try to lease your property. This does not mean that you have to accept any tenant who applies or that you must accept below market rent, but you should try to get the place leased. Of course, this law makes sense, because even in a state where you may not have an obligation to try to re-lease your property, most landlords cannot afford to sit back and not collect rent. Also, taking a former tenant to court for money that you may never be able to pay is an expensive undertaking best avoided.
So if you have a tenant who has broken their lease, consider whether they have been renting at a lower-than-market price. If so, then great, rent your place for more money. If not, try to negotiate with your tenant, offering a written agreement to end the lease and a strong recommendation in exchange for a partial payment of the remaining rent due. Lastly, whether or not this can be accomplished, accept the fact that tenants will break their leases from time to time and you just need to cheer up, put up a rental sign and start marketing your rental property again. It is only part of the cost of doing business.