Breaking a lease, who’s responsible for what?

The sudden need to move house can happen for a variety of reasons – the loss of a job, getting a new job, a family crisis, financial issues or relationship breakdown, just to name a few.

But it’s an urban myth that a tenant handing over the keys to a property equates to handing over the responsibility for the property.
Here I will explain what happens when a property is being rented on a fixed term lease and the tenant wants to move out before the agreed end date, known as “breaking the lease”.

There are two ways a lease can be broken one common and one not so common. The uncommon variety is when the tenant and the landlord both agree the tenant can vacate early. In this situation, a tenant is released without penalty, financial or otherwise. In the second variety of break-lease, the tenant is still allowed to vacate the property, but will be responsible for the associated costs.

There are three categories of costs involved in the usual break-lease.

They include the advertising cost to find a suitable tenant, the balance of the letting fee charged by the agent (based on pro-rata), and the rent due on the property until a new tenant moves in.

Advertising costs will generally by fairly minimal, and the tenant should bear in mind it’s worth spending some money on advertising to ensure a new tenant is found quickly. The letting fee, is charged on a pro-rata basis – for example, if the tenant is breaking the lease half way through the term, they will be responsible for half the letting fee payable.

Importantly, finding a new tenant is not just about finding anyone who is willing to take over the lease. The landlord does have reasonable right to choose someone they believe will make a suitable tenant.

Another key condition is that the property must be let at the same rent the old tenant was paying for the remainder of the term of the lease, although the landlord does have the right to subsequently put the rent up. It’s not uncommon for a rent increase to be built into the new tenant’s lease when the initial term is up. If a new tenant can’t be found at the same rent as before, the old tenant can elect to pay the difference between what a new tenant is prepared to pay and what the old tenant had agreed to – and sometimes it can be more cost effective for the old tenant to do this in order to find a new tenant quickly.

At the end of the day, the laws around a break-lease are designed to promote a fair and reasonable outcome for both tenants and landlords – if both parties enter the process with that premise in mind, it should be a relatively painless process.