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What happens when a tenant wants to break their lease early? We’ve put together a guide on how you can efficiently handle this situation.
Vacant properties or spaces are the banes of the rental industry. Therefore, it is in a manager’s or owner’s best interest to keep their rental property occupied by qualified tenants.
In a perfect scenario, a landlord will secure a long-term lease with a responsible tenant, who pays rent on time, takes care of the property, and gives proper notice about vacating the premises when the lease is about to end.
However, in some cases, tenants may choose to end their fixed-term tenancy early due to legal or personal reasons. So what do you do if that happens?
If your tenant is breaking their lease early, it can be both a logistical headache and a financial burden. Additionally, you now have to deal with an unexpected vacancy that you must try and fill in a short amount of time to avoid the loss of rental income.
First things first—don’t panic! As a landlord, it’s important you know how to handle these situations to make sure you communicate clearly and fairly, follow legal protocol, and ultimately meet your bottom line. –
Here is our guide to help you stay informed on your legal rights, obligations, and how to lower the risk of money being lost in the event that your tenant wants to break their lease early.
What is a tenancy agreement?
First, let’s understand what a tenancy agreement is.
A tenancy agreement is a legally binding agreement. Also known as a lease, it is a signed legal document that binds tenants to the terms, including the pay rent through the move-out date you, the landlord, put into detailed terms.
What is a fixed-term lease?
A fixed-term lease or tenancy is when the tenant and the owner/property manager agree on a single, specific length of tenancy. Usually, this type of lease is for six months or one year, although it can be for any period as long as the period is fixed.
If a tenant ends a fixed-term agreement before the set end date, they are breaking the agreement. This is also known as breaking the lease.
Is it legal for tenants to break their lease early?
Yes, tenants can break their lease early. However, this is only allowed after receiving written consent from their landlord and under legal exceptions (depending on the state).
So, if you choose to provide your consent and agree to terminate the tenancy early, that is perfectly legal and valid.
What should you do if your tenant wants to break the lease early?
Step 1: Find the reason
First and foremost, the most important step is to figure out why your tenant wants to leave before their lease is due.
Whether or not you could (or should) deny them from breaking the lease will depend on their reason for wanting to do so.
Tenants’ reasons for moving out can vary from “I just don’t like it here anymore” to “I’ve been laid off and can’t afford rent anymore”. It may even be as simple as a maintenance issue you can help with.
If you find out that they’re leaving simply because of an unresolved issue in the space or because of a situation where a simple negotiation (e.g. delayed payments) is needed, you may get a chance to save the tenancy as a whole.
If it is a simple fix and you have the capacity to resolve it, this can not only avoid a tenant breaking lease early but can result in a happy tenant that will stay long term (or at least until the end of the lease).
Step 2: Review the lease
But what if the tenant’s issue is not a simple fix? What happens then?
The next step is to review the tenancy agreement to verify how well you are covered (and what obligations your tenant must uphold).
The tenant must, by law, produce a written termination notice that includes: the address of the property, the date they plan to vacate the premises, and a valid reason—this means it must be related to specific grounds for termination detailed in the rental agreement or state rules. This must be delivered to you or your agent in person, by post, or by email.
The amount of notice period will usually be different depending on the situation, but generally, a tenant should give as much notice as possible.
Once a tenant has given notice, your next step is to find a replacement tenant. Get a written agreement stating that you will put the property back on the market and allow you to find a new tenant.
Following this, the tenant must vacate the premises as per the notice. Depending on the situation and the location of your property, a tenant may have to continue paying the rent until the fixed period ends or a new tenant moves in.
Step 3: Notify your property manager as soon as possible (if you have one)
If your tenant needs to terminate their lease, you should always contact your property management agency, as they will be able to manage the process for you.
This can also help your property manager make preparations for screening a new tenant and take care of the legal and paperwork involved.
Step 4: Check your state legislation
As mentioned, the typical penalty for tenants breaking a lease is to reimburse their landlord for any expenses incurred as a result of the break of lease, including any loss of rent.
In some states, you can get compensation for early termination or penalty fees from tenants, while in some jurisdictions, they can’t be penalised for breaking the lease.
They may also have to cover a portion of the advertising costs and an agent’s reletting fee if you use a property manager.
Below is an overview of the legislature on breaking a fixed-term lease in each state. Make sure to also check the links provided for each state for any updates/changes in the provided information.
State-by-state guide to breaking a lease
In NSW, when a tenant signs a fixed-term agreement, they are committing to stay for the full term.
A tenant should give the landlord as much notice as they can if they need to end the agreement early. A tenant should also make it as easy as possible for the landlord or agent to show the property to potential new tenants.
If a tenant wants to vacate the premises before the end of the fixed term, there could be costs involved. One cost tenants may incur is a break fee (if it is included in the tenancy agreement). For leases entered into on or after 23 March 2020, break fees are regulated and based on the stage of the agreement.
If the mandatory break fee applies, the set fee payable is:
For leases entered into before 23 March 2020 (or leases that are more than three years), landlords and tenants should check whether the optional break fee clause was included in their agreement, in which case a penalty of six weeks’ rent will apply if the tenant leaves in the first half of their fixed period, or four weeks if in the second half.
There are also scenarios where a tenant can end a fixed-term agreement without penalty. In certain circumstances, such as hardship, domestic violence or relocating into social housing (e.g. from DCJ Housing) or aged care, tenants can break a fixed-term agreement without penalty by providing 14 days’ notice.
For a full breakdown of this information, visit the Fair Trading website’s Ending a Tenancy page.
Queensland tenants who break a fixed-term lease may be required to compensate the owner or property manager for costs incurred.
These include paying the weekly rent until a new tenant is found or until the end date of the agreement. The tenant may also have to pay reasonable reletting (usually one week’s rent plus Goods and Services Tax (GST) and advertising costs. Owners and property managers must also take steps to minimise any losses.
For more information, check the Queensland Residential Tenancies Authority website.
In Victoria, tenants who terminate a fixed lease early are not required to provide compensation to their landlords.
However, they have to cover costs such as re-advertising the property; if the property is rented through an agent, tenants are also required to provide compensation for the reletting fee.
A rental agreement may include fees for breaking the agreement. If there are fees listed, the agreement must indicate the reason for the fees.
Tenants experiencing severe hardship can apply to VCAT to break a lease without paying fees.
According to the ACT’s legislation, tenants must pay a break fee if they choose to break the agreement. This is an amount equal to six weeks’ rent if the tenant leaves during the first half of the fixed term, or four weeks’ rent if they move out in the second half of the fixed term.
It should be noted that the penalty can be reduced if a new tenant is found in that six-week period, and the previous occupier would only be required to pay up to the day prior to the new tenant starting renting the place.
If a new tenant moves in during that period, landlords can also charge administrative costs, including advertising fees, from the vacating tenant up to a maximum of one week’s rent.
There are also legal exceptions stipulated by the state. In special cases – such as where a tenant is facing financial hardship, a court has made a protection order, a tenant has accepted a social housing or aged-care place, or where a tenant has been posted away from Canberra for work – tenants may break leases without paying compensation.
In the ACT, the minimum notice period is based on the reason for terminating the fixed lease agreement.
Tenants who decide to break their lease early may have to pay rent or other reasonable costs (e.g. advertising) incurred by the landlord until a new tenant is found or the originally stipulated tenancy period ends.
Tenants that are experiencing family violence may terminate a tenancy agreement with seven days’ notice.
Fixed leases can also be broken by mutual agreement without paying penalties or the need to issue notices. In this case, both the landlord and tenant need to have a written and signed statement that the tenancy agreement should end on a specified date.
For more information, visit the government of Western Australia’s Consumer Protection website.
Tenants may end a lease by giving the landlord or property manager overseeing the property 14 days’ notice if:
If a tenant breaks a lease before the end date without proper reasons or a notice to terminate, they are responsible for paying rent until a new lease starts or until the end date of the lease, whichever happens first.
The owner must make reasonable efforts to try to find a new tenant, and the tenant will have to pay any advertising costs charged to the owner.
For more information, visit the Consumer, Building, and Occupational Services website’s Tenant ending a fixed term lease page.
Tenants who break a fixed-term lease will be liable to pay the loss of rent until the lease ends or until the property is relet.
They may also have to pay fees such as advertising costs to the real estate agent of the property.
Tenants should give landlords or agents as much notice as possible to arrange a new tenant before the date they declared they would vacate the property.
Visit the Northern Territory government website’s Breaking a lease early page for more information.
Tenants who break a fixed-term lease in South Australia are responsible for shouldering costs related to reletting the premises.
Landlords can claim loss of rent until the property is relet, as well as advertising and reletting fees charged to the landlord by an agent.
Under the state law, formulas developed by the South Australian Civil and Administrative Tribunal (SACAT) must be applied to all advertising and reletting costs. If the tenant breaks the lease in the first quarter of their indicated lease term, full costs can be claimed by the landlord.
If landlords need to lower rent to relet the property to quickly fill in the vacancy, they can claim the difference from the tenant until the date their lease ends.
However, if the property is relet at a higher weekly rent, it means that the landlord is profiting from the lease break, and tenants can expect the profit to be offset against the landlord’s loss of rent, advertising and reletting fee.
For more information, visit the South Australia government website’s Ending a fixed term lease early page.
Disclaimer: All information in this article is provided “as is”. The material and information contained in this article are for general information purposes only. It is not recommended to rely on this material or information as a basis for making any business, legal or any other decisions. As with any legal information, it is also strongly advised to get professional and independent legal advice for your circumstances.
Property management is the act of overseeing the daily operations of a residential, commercial, or industrial real estate property, which are usually provided by third-party contractors.
A tenancy agreement is a contract between a landlord and tenant that states their rights and obligations to the lease, such as the use of the property and the monthly rental payments.