Tenant Breaking Lease - How would you proceed?

[Brandon C.]

I bought my first SFH back in the summer. I was able to get it rented fairly quickly (in a month) just advertising online. Screened several people and settled on a family moving to TN from FL. We did a 10 month lease going from 8/1 thru 6/30. Rent is 1200, and security deposit is 1200.

The renters have been great. I had to make a small repair to the stove about a month ago, which was the last time I spoke to them.

Yesterday I received a phone call from them. The tenant stated they wanted to break the lease because they had purchased a home. I asked him when they were closing and he said "We closed today." He went on to say, we didn't know we were closing up until a couple days ago. This has been an ongoing process for 6 weeks. It's a VA loan and there was a bunch of back and forth. I don't have a lot of cash and I wanted to be up front with you and not just leave in the middle of the night.

I don't buy the "we didn't know we were closing until 2 days ago"

My lease CLEARLY states (TN law states it as well) they are responsible for rent until the lease ends or I find new renters. In fact, I have a spot where they initialed by that section of the lease. 

My lease does NOT state that the security deposit is lost when one breaks a lease. Tenant is charged a $250 fee and SD is returned minus the fee and any damage. 

The tenant stated that he was willing to forfeit the deposit. I did not agree to anything yesterday when I spoke to him. I just said "you've blindsided me and I need to come up with a plan and I'll give you a call tomorrow. I'll go ahead and start advertising."

What would you guys/gals do in this case? 

Part of me thinks I should let him go, keep the SD (after speaking to an attorney) and get on with finding a new tenant. 

Other part of me is a little ticked that he hasn't said anything to me and wants to hold him to the lease. However, my concern is he may just leave, and then I'll have to go thru the eviction process because I don't know if he would pay January rent. 

I go back and forth. Currently, there are very few rental houses in my area available. However...it's 2 weeks before Christmas. Look forward to hearing your thoughts!

[Robert Feol]

Hi Nathan

Welcome to landlording!!!  If I could, while understanding the tenant giving you no notice to vacate is certainly irritating, I would encourage you that this also brings opportunities for you to further prosper.  A few things:

1) In Tennessee, A judicial state, it is unlikely a judge is going to award you the lease balance as relief for the the tenant breaking the lease. I have seen tenants fall behind in rents many times, and assuming you get to court, the judge awards you for back rent and attorney fees, never unpaid future rent balances.  That is, of course, in Memphis. Nashville courts may be different but always remember getting a judgment and collecting are two different things.

2) You could probably tell the tenant that, since they have been a great tenant, you are willing to let them out of their lease under the following conditions, a) they forfeit their security deposit as a condition of you releasing them from their contractual obligation without further recourse, leaving the house in broom clean condition, and b) part of this agreement is they pay an additional month of rent since it is unfair to you to be left 'hanging' since they opted NOT to disclose to you that they were buying a house which, clearly, would be a violation of their lease agreement if buying a home precluded them from paying you rent(which it does).  

The flip side of this for you is that, based on limited information that you have given, you seem to own in a desirable neighborhood with high occupancy.  You may be able to get a rent increase($1095, anyone?) and rent the house by January 1st.

Assuming your tenants pay AND leave the house in excellent condition, you may find yourself with a security deposit in your pocket you can bank for future repairs.

On a final note, and you may know this but for the benefit of other new investors,  using the judicial system should be a last resort.  When tenants choose to 'not behave' according to their contract, you should always try to remedy the situation by holding them accountable and then, if the still choose not to cooperate, find a creative way to 'encourage' them to move out and leave the house in good condition, without putting yourself at the mercy of judges and lawyers.  A vacant house ready to rent is always better than an occupied house which awaits a court date or the dreaded (inevitable) bankruptcy.

Hope that helps.