Tenant Backing Out of a 2 Year Lease After 3 Months!

[Caleb Anderson]

Hey BP community!

So my tenant is backing out of their 2 year lease, and they've only been there 3 months. The reason for leaving is "getting married and moving in with new spouse". My cash investor owns the home, and I was handling management and money organization piece. The tenant has been great so far with no complaints. Trying to get some feedback and ideas on best ways to handle the situation. 

First thought was to- My party keeps security deposit. -Have tenant pay rent for the current month. -Have them pay cost of finding a new tenant.

Myself and investor were also considering selling the property, which we would make a profit from. We already have other properties that look interesting that we were planning on going for anyways. I know the tenant is responsible for the lease, but them leaving in the situation we are in almost seems like a good thing.

Thanks for any help! 

[Matt M.]

@Caleb Anderson

Tough to get more than a month. Nobody has $...

[Irina Belkofer]

Originally posted by @Dennis M.:

On a side note avoid long lease terms . 2 years is way too long 

 That's right: should be month-by-month!

You'd get 30 day notice and wouldn't get any recourse .....that's really smart way to have vacancy every winter.

[Richard Turner]

I am in PA. Rented properties for over forty years. All leases are one year and then renew month to month with two full calendar months notice. DJs will grant judgement as this is reasonable. DJs (district justice) are reluctant to grant more and likely hood of collection is minimal. Tenants are more likely to give proper notice because they are not stuck in a long term lease after first year. 

[Irina Belkofer]

I have two years leases and always renew them at two years or higher rent for one year. Only once I let Tenants Rent month-by-month because they were buying a house but their rent was +$100 to their usual lease.

The lease has 2-mo early termination fees in the first year and one month - second year of lease.

Yes, I do get these fees sometimes but more important I get Tenants to show the property when they are still live their: because they are motivated to not pay the fees, their place is always in Showing condition.

Month-by-month is the worst thing for me as landlord: I'm renting my properties for the top market price and don't want to compete with $675/mo when renting next door for $825.

Stable tenants are my way of doing business. If someone like turnovers and vacancies - they can do it monthly. I prefer stability

[Gregory H.]

In my experience, the best tenants would not go for a month to month lease. It depends what sort of quality your properties are. My portfolio is all Class A, so the tenants are mostly highly paid professionals. They want a stable living situation just like I want a stable tenant. We've signed leases for 2-5 years with nary a problem. Additionally, if you own investment properties that are part of homeowners or condo associations, many of those require that tenants may not sign a lease for any term less than one year. A final caveat, some commercial lenders aren't too keen on M2M leases, and there may be documentation in your loan docs regarding this.

[Steve K.]

@Irina Belkofer we bought a property from someone like you last year, some of the tenants had 5 year leases! Of course this came out during due diligence when we got the estoppel and leases, so we had the current owner switch them to M2M before the handoff because we wanted to get them on our lease and raise rents. I can definitely see the appeal of longer leases when dealing with Class A tenants, or any tenant really if you’re in a landlord friendly state and evictions aren’t a major concern. The one downside for me is missing out on being able to raise rent (if market rents are going up), which is why 2 is the max I’ll do, and only with an escalation written in for year 2. Personally M2M sounds stressful to me, turnover is the #1 profit killer and finding quality tenants Oct-May is harder so I shoot for yearly expiring May-Sept. But I can execute an eviction in less than a month in my state anyway, and judges tend to take the landlords side in my experience. If I were in NY, CA, MA, CT, Penn., VT, etc. where it’s harder to evict and dealing with a less reliable tenant class I could see the advantage of M2M.

[Joan-Marie Pagan]

@Caleb Anderson 🤣🤣

[Irina Belkofer]

@Steve K. well, five years would be overkill...lol

Two years very seldom holding up but it helps me to manage switching Tenants with no vacancies in between.

Also, right now I've got new property just rehabbed and I'm signing lease for 15 months only: I don't want winter turnover and I do expect higher rents in 2020 after Amazon will open its distribution center in Euclid. Almost all my rentals are in Euclid and I don't really see here any A class properties, mine are definitely C+/-.

B class I'd consider these rented at $1400-1600/mo which is very few, too.

Month by month is definitely not for the states with winter breaks in rent.  I can rent anything in April in first days of property available, in December I've got lucky to rent within 3 weeks of listing. That's where my clients lose money.....not good

[Stephen Jeffers]

Our policy is a 2 month early termination fee, and 60 days notice to terminate early.  This provides a 4 month payment instead of an entire lease.  Also I don't engage in leases over a year, or under a year.  Over a year they want special pricing, but ultimately as a PM the conversion makes more money.  Like referred all suggestion are subject to legalities in your area.  Unless we are being real sticklers we usually don't even enforce the additional rent if they move out immediately and pay the termination fee and we get a new renter, but legally according to the contract we can.