As a landlord, I love the break lease clause. I have made that very clear here and here. After working with this break lease clause for a while I have noticed that there are some amazing benefits for the tenants too! That tenants who don’t have it are usually bummed.
As a landlord, it is very important to protect my assets and the best way for me to do that is to have an effective lease. That being said, I have been accused that the break lease clause makes me money. That is where I respectfully disagree and it is the point of this article!
After speaking with MANY tenants and landlords I have come to an opinion that this is a VERY important clause for both sides.
Lets start with the basics…
I have always been told the “general law” in most states without a break lease clause is that a tenant is responsible for the entire lease until the landlord can replace the tenant. At the same time it is the landlord’s responsibility to make every effort to fill the vacancy with a replacement.
*As always, make sure you check your local real estate laws as I am nothing more than a landlord and not a source of legal information.
As a landlord this annoyed the heck out of me because I have always been able to fill the vacancy with no loss of rent. I have homes in great markets in good condition so they rent quickly. That being said, it’s still lot of work when my tenants want to break their end of the contractual obligation as I have to advertise, field calls, screen/interview and so on. The perfect replacement doesn’t just appear.
After talking to others, I have found that this is the “best case situation”. Many landlords have had their property sit empty for months when a tenant suddenly moved out! Some markets have real moving seasons that are pretty much set in stone. A vacancy that occurs outside of the season can be devastating.
I didn’t realize how much breaking a regular lease without a break lease clause was a greater benefit to the tenant side.
So now on the the other side of the coin:
The laws requires the tenant to “replace” themselves although they have no control over the landlord’s responsiveness or the ability for the tenant to be replaced. For many tenants this unknown can be VERY stressful. While the landlord is required to make every effort to find new tenants; the current tenants have no control of the situation. Is the landlord going on a 2 month long vacation, are they in a health crisis, having a child, traveling for the next 6 months?? etc.
There is no way to budget or predict the cost. One could get lucky and have a very proactive landlord in the right market who finds a new tenant instantly. They could also get one that has “trouble” finding a new tenant.
Another issue is the landlord is not required to “drop” the rent to entice potential replacement tenants. The current tenant is SOL as the landlord is under no requirement to drop the rent to fill the vacancy. So, if that market, like many, has a ceiling where $25-$100 lower would be the difference in filling a vacancy they could lose rent because the house is currently over priced for that time in the market cycle. If anything, if the landlord drops the rent and fills the vacancy at the lower rate then they would take an even larger loss than just losing out on the current tenant’s lease. So honestly, it is in the landlord’s benefit to hold on to the house at current rent for the length of the lease.
While it is true that if we replace a tenant “instantly” we “make” money off the break lease clause; we, the landlords, are also assuming all risk. If you use the break lease clause- once the tenant pays; they are done. The tenant has no liability towards the lost rent. I have experienced this before. We have had to lower rent due to a tenant breaking the lease at a bad time. But, that is the price I pay as a landlord with this clause.
Therefore as a tenant I would definitely review your lease to see if you have a break lease clause. While it might feel like a large sum of money there is a large possibility that it might be a “good” thing long term. You pay the fee and wash your hands. Done. If you don’t have a break lease clause then you are responsible for the ENTIRE amount of the lease until a landlord replaces you, when you want “out” of your lease. So there is no way to budget the cost as a tenant.
Yes, having a break lease clause compensates the landlord for the extra work and possible bad timing, at the same time it also absolves the tenant from the worry of when their replacement will be found. Since they are responsible for paying the rent until a proper replacement is found. It really is a win-win.
What are your thoughts?0