Can I re-rent while current leaves the house after paying ?

Question

My tenant wants to leave 1 month early and agreed to pay the last month's rent in full. Can I create a new lease with the new tenant while current lease is still valid ? If the property is rented, he asked to provide a prorated refund. Do I need to have a written agreement regarding this ? If so, if he and I sign on a paper, is that sufficient ? or is there any specific attestation needed ? Please advice.

BTW, the property is located in California.

Peter M. · Answer

Thank you for the information @Jim Cummings. I went back and read 91.006 and it is good to know that it is interpreted that way. From the way it is worded I always thought it was only referring to physical damages. I would want my unit rented as quickly as I could so I would never find myself in violation of this clause but it just goes to show that you don't know what you don't know. I copied the actual wording below if you are interested. Thanks again.

Sec. 91.006. LANDLORD'S DUTY TO MITIGATE DAMAGES. (a) A

landlord has a duty to mitigate damages if a tenant abandons the

leased premises in violation of the lease.

(b) A provision of a lease that purports to waive a right or to

exempt a landlord from a liability or duty under this section is

void.

Peter M. · Answer

@Jim Cummings Good to know and I do of course start looking immediately. But who/what regulation makes it a requirement?

Kyle J. · Answer

@Pavan Kovvuri  In California, landlords are required to mitigate damages (losses) when a tenant breaks a lease and are not allowed to double collect on rent from both the old tenant and the new tenant when a new tenant is found. Here's a couple examples to help you understand what that means and how it works:

Example #1 - Your tenant's lease is up at the end of November but he notifies you that he'll be breaking the lease and moving out a month early at the end of October.  He's willing to pay the last month's rent (November) in full.  You begin searching for a new tenant and find one, but they can't move in until the 1st of December (right after your previous tenant's lease ends on Nov 30th).  You accept this new tenant and begin collecting their rent December 1st.  In this case, you'd get to keep the previous tenant's full last month rent payment for the final month of their lease (November) because there was no overlap and they were responsible for the entire term of their lease agreement.

Example #2 - Same beginning as the above scenario but the new tenant you find can move in a little sooner, on November 15th instead of December 1st.  Since your previous tenant had already pre-paid the final month's rent (November) in full, you'd actually owe him a partial refund for the pro-rated month of November because you ended up finding another paying tenant for part of that month (the 15th-30th).  You can't double collect for those days, so you'd only be able to charge the previous tenant for the days in which you didn't receive rent from the new tenant (the 1st-14th).

Make sense?

Here's some more reading on the topic: Nolo: Tenant's Right to Break a Rental Lease in California

Jim Cummings · Answer

@Peter M. In Texas, there is a requirement you mitigate the lease breakage by making an active effort to get the property re-leased.

Doesn't mean you have to dilute your requirements or take less for rent - you just have to be making an active effort to get the property leased.

Peter M. · Answer

I have done this  in the past but also require a lease break fee in addition to them being responsible for all rent until their lease expires. If I get somebody moved in before their lease would have expired I prorate it back to them. I also have verbiage that states the new lease must be at least equal or better than the rate they were paying.  And yes you can just type it up and both sign it. Below is an excerpt from my lease. I have a separate document that goes into more detail but this is the basics.

(1) Tenant may not assign this lease or sublet the Unit without Landlord’s written consent. This includes   AirBnB, VRBO, and other similar house sharing/swapping services.

(2) If Tenant requests an early termination of this lease under this Paragraph 28B, Tenant may attempt to  find a replacement tenant and may request Landlord to do the same. Landlord may, but is not obligated to,   attempt to find a replacement tenant under this paragraph.

(3) Any assignee, subtenant, or replacement tenant must, in Landlord’s discretion, be acceptable as a tenant   and must sign a new lease with terms not less favorable to Landlord than this lease or otherwise acceptable   to Landlord;

(4) If Tenant requests termination of this lease agreement early, notice of no less than 60 days must be   given to Landlord. Landlord is not required to accept the request.

(4) At the time Landlord agrees to permit an assignee, subtenant, or replacement tenant to occupy the Unit,

Tenant will pay Landlord:

(a) $   ______________  lease cancellation fee; and

(b) any prorated rent prior to the new lease Commencement date.

(5) Tenant agrees to vacate the unit more than 7 days prior to the new lease Commencement date and   further agrees to move out as per all conditions set forth in this lease.

(6) Unless expressly stated otherwise in an assignment or sublease, Tenant will not be released from   Tenant's obligations under this lease because of an assignment or sublease. An assignment of this lease or a   sublease of this lease without Landlord's written consent is voidable by Landlord.

Bart H. · Answer

As you rightly point out there are a whole bunch of costs that new landlords don't take into consideration.  Capex, vacancy etc.

Respectfully though, if I rent a house to you for 12 months, I have agreed upon a price that should take my costs into consideration.  Lets say it costs 1,500-2000+/unit to turn a property between marketing expenses, paint etc, lets call it $1,800/turn .  Implicit in that lease is an amortization of that cost across a 12 month lease.  IF you cut the lease 4 months early on me, you have cost the landlord 4months of that amortization, or $1,800/12*4=  or $600.  Shortening the lease does have a real cost to the landlord.

Jerel Ehlert · Answer

@Bart H.

Re: Broken lease fee: Sure, but it has to be in the lease beforehand and should be reasonable, and should not double-dip.

Re: Make-ready:  I disagree that there is a set cost to turning over the unit.  That cost *should* be factored into every lease because no tenant is going to live there forever.

These things are a symptom of not looking at rental properties as a real business.  Rent covers a lot of different expenses that new LL's don't see going in, then try to recoup from tenants.  New LL's consider all rent as "profit", less the obvious taxes and insurance.

There is *vacancy loss* which should be factored into every lease.

There is *wear and tear* to replace EOL (end of life) components.  I.E., replacing parts to maintain value.

There is *cap ex* (capital expenditures) to make improvements.  I.E., replacing linoleum or shag carpet with ceramic or laminated wood when it goes out of style.LL profit is what's left after taking out the obvious expenses and not-so-obvious expenses.  THEN your cost of financing (principal and interest) comes out of LL profits.  AND THEN anything is left - THAT is your net profit.

Analyze a few multi-family or commercial deal and see where the line items fall.  Gross rents - vacancy loss + ancillary revenue (like laundry machine rental income) = Gross Operating Income.  Add up all your expenses (payroll, leasing commissions, maintenance, make-ready) = Operating Expense.  Gross Operating Income - Operating Expenses = NOI.  NOI - Cap Ex = Profits.

Out of your Profit, you deduct debt service.  Most banks will work from NOI, but expect you to set aside part of the profits for Cap Ex.  That's why they won't (or shouldn't) let you use all of the NOI for debt service, and have a DSCR (debt service coverage ratio).  An average is 1.25, which means for every dollar of NOI, you can only use $0.75 to service the P&I, and expect part of that last $0.25 to be reserved for Cap Ex.

Bart H. · Answer

But cant you mutually agree to a fee for breaking the lease?

Ie either keeping the deposit, or collect a fee to break the least?

There is a cost to turn over a unit, usually runs a month or a month and half in rent.

Rob D. · Answer

You don’t need a letter. Simply charge the existing tenant until the day the new tenant moves in. Then refund the unused portion of the month rent the original tenant paid. Send the refund with all itemized letter for all the accounting of the rent and security deposit. Separate letters separate checks

The property being vacant is your responsibility as the tenants surrendered possession.  Unless the tenant vandalized the property your rental insurance pays for damages from such instance.

Can I re-rent while current leaves the house after paying ?

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