One Year Leases With Break Out Clause Wording?

Question

I have 12 rentals and I have always done 3 month leases, which then turn into month to month leases. While my apartments are well maintained and reasonably prices, there still seems to be a lot of tenants that shop around for lower rents and move out at the end of three months. I guess maybe it's that "grass is always greener" syndrome. I was considering going to one year leases but adding a Break Out Clause to the lease as well. Does anyone have experiences with them and any examples of the wording?

Jon Holdman · Answer

Here's my section on this.  The amount is equal to the deposit.  This has been reviewed and approved by an attorney here in CO.  YMMV.

Improper Termination Fee.   Tenant acknowledges that failure to complete the Lease Term or failure to give the proper thirty (30) day notice will damage Landlord and Landlord will incur costs and expenses including but not limited to, costs to make the Property showable to prospective Tenants that would not normally be chargeable as damages, advertising costs, time showing the Property and screening potential Tenants, delays in scheduling work by contractors or Landlord's employees, and lost opportunity costs of renting other Property.  If proper notice is not given and/or Tenant fails to complete minimum term, Tenant agrees to pay to Landlord an Improper Termination Fee in the amount of $___________, in addition to any rents due under terms of this Lease.

Bob B. · Answer

Why not just shop the local market and see what rates are?  Are you asking them why they are moving?  Maybe by giving a 3 month lease they feel that's how long you want them there and once they have honored their commitment they are ready to move on.

Is your property above average for the area?  Is it somewhere people want to move in to or out of? Are they happier when they move in or when they move out?

Tenants don't move for $10 a month.  Unless they are living out of a suitcase there are costs associated with moving.

Jeff G. · Answer

@Troy B.

I've only ever really rented via 1 year lease when I was a renter. So, I question the wisdom of such short leases. I personally would never have a breakout clause in most cases.

Additionally, it sounds like you might not be screening tenants properly. Besides criminal history, credit, and other obvious factors you need to see what their rental history is like. Did you call their previous landlord during the application phase? Do they move around in less than 1 year increments? If so, that should have been a red flag.

If you're in an especially low-rent market (and it sounds like you are) and you're concerned a 12 month lease will make you less competitive, you might consider using an inexpensive loss-leader like a "free 40-inch TV" with a 12 month lease as an incentive to sign.

Just remember the price of the TV when you need to go after the tenant for a broken lease.