How should I handle a tenant request to break lease?

Question

Hello BP Community,

I am new to landlording...just closed on my first property about a month ago, I'm in the southeastern PA market, it is a side by side duplex with a detached barn I rent out for storage. I inherited tenants on both sides of the duplex, the young couple on one side are about 3 months into a 1 year lease, and just sent me an email asking if they can break the lease and move out without paying a fee because they broke up (lease states that 50% of remaining term rent is the penalty). In my limited time knowing them, they appear to be good tenants that wouldn't give me problems. I'm sure there are plenty of more experienced investors on here who have received requests like this, do you always charge the full penalty the lease states? Are there any other factors I should consider as I decide how I want to respond/handle this?

P.S. I'm pretty confident that I'll be able to find a new tenant fairly quickly as the rent is around 10% below the median for comparable apartments in the area.

David M. · Answer

@Dylan Katz

Just reinforce whats been said... You need to figure out your "personal style."  Yes, legally you have a contract which has provisions for this.  You could stand on legal/principal grounds that you are owed money.  Or, you can assess the situation and see what "makes sense," for lack of a better term.

The legal approach is pretty straightforward in my mind, and its been discussed above...  It has so much potential for additional costs...

Sort of devil's advocate, what's the harm in letting them go for free?  You say that you are pretty confident in finding a new tenant.  So, what's your "damage?"  Even in a lawsuit you general need to have some sort of damage (I guess, consult a lawyer).

I've had it where my tenant and I basically don't get along / they just don't like my unit.  I've told them straight up, "if you aren't happy living here, you are free to leave."  Every time they are extremely surprised.  They are basically being extra nasty because they are upset --- about whatever and they certainly could have any number of motives.  They become very cordial and we leave on good terms, and they pay me no penalty.  I have no more headaches, no more stress (about this tenant), and no to little concerns about them trashing the place on the way out.

Its a tough balance between worried about the tenants trashing your place, not paying (especially now in this environment), or any number of "bad things."  Most "small time" landlords don't want the headache.  We ahve our day jobs, our families, etc.  But, you can't always make your decision on the worst case scenarios.  Its basically 'another' negotiation.  I've had it a few times the tenant asked for something on their way out and I said "no."  Many times they basically "shrug their shoulders."  A few times they basically "broke down" and told me they just "had to ask" and we had a good laugh about it.

As with just about everything in life, its about people.  this is why I've never used a property mgt company.  Also, why shortly after I started becoming a landlord, agents would ask for my units by name.  Apparently, I was doing something "right" and people/agents wanted to rent from me.

... Back to your question..  Find out what is the motivation / reason for this.  Yes, in the situation where they tell you a sob story for the sake of the sob story, you might get 'hoodwinked.'  But, for most cases you ask nicely/professionally ask for proof.  If you think you are being 'hoodwinked,' just make sure you give them some way "out" of the story in case they can't follow through with their story.  I believe the potential for a discrimination issue is possible.  Of course consult with a professional, but if they have a reasonable "story/situation," in my layman's opinion you should be fine.  Yes, if somehow you keep getting tenants who want to break your lease and you keep giving breaks to a protected class, that might be a problem.  But lets face it, at that point you've got plenty of other problems including a Federal discrimation lawsuit if people keep wanting to break their lease with you.

People have lifes, and "stuff" happens. One tenant had to leave quickly because her elderly mother fell ill (or fell, this was a long time ago), and she has to return home to take care of her.  No, I didn't ask for any paperwork on it as felt it was true and she had been a good tenant of mine for I think 5 years.  Of course, I was in my legal rights to collect my fee but I didn't and only lost two weeks of rent (i.e. got a tenant in only two weeks after she left).  For me, its no "big deal" to do the "right thing."

so, I hope this helps.  Good luck.

Bill B. · Answer

I’d ask for 1 month but be ready to settle for 1/2 or nothing. Don’t forget in this crazy period we’re living in they could stop paying rent and not move out. Especially if one of them doesn’t have a job.

You’ll be able to use your new lease, screen them using your policies, and set the rent you want to collect.

Joe Martella · Answer

@Dylan Katz As you grow into your real estate investment business, you will come across many situations where sometimes it is OK to be flexible.  As you search BP on various topics, you will see that many different investors have various different ways of doing things.  Sometimes you have to go with what works for you.  A tactic or approach I take may not be as easy for you to do given different personalities and situations.  Keep in mind that there is more than one way to hand a situation - it doesn't mean that one way is right or wrong.  Which works best for you is what you have to consider.

For example, you just got two answers from different sides of the spectrum Bill said to keep in mind that they could be living for free and let them go, while Eric says to hold them to the terms of the lease.

In my opinion, there are times that you need to be flexible and times that you need to be stern.  In this case, the choice is completely up to you.  You can hold them to the lease and get the 50% rent, you can tell them to give you one month instead of the 50% so you can rent it or you can just let them go so you don't have to deal with the drama.  Know that there is potential for consequences for this.  For example, if you tell them they need to pay the term of the lease, they may be forced to stay financially.  Now you have an angry couple fighting and disturbing the other tenants in the duplex, which may result in complaint calls to you.

You see, most of us on here have a better form of financial intelligence than the average bear.  We manage our money and invest it.  Did you know that most of Americans live paycheck to paycheck?  If that is the case with your quarreling couple, what makes you think that they have the money to pay up the term of the lease?

Everything is a negotiation and everything has intended and unintended consequences.  You just need to run the scenario through your head and figure out what would the actions/reactions be.  In my leases, since we are at a higher price point, I have that they give 30 days notice along with 2 months rent and they can terminate the lease.  I feel that is more reasonable.  Others on here probably think that I am crazy.  Then again, I have one tenant in place since 2018, another since 2019 and another since 2020 who just signed for year two.

In my personal opinion, if the unit is in good shape and you can immediately show it, I would tell them that you would forego the remainder of the rent owed if they allow you to show the unit now and take it from there.  Start with the 50%, go down to a month, then ask to show the place.

Just know that this is no textbook answer.  As a landlord you need to be aware of the laws that impact you and the current events, such as the eviction moratorium.  They all have to play a factor into your decision.

Scott M. · Answer

You follow the precise steps that are laid out in the lease.  This is exactly what a lease is for.  it isn't for when everything is going well, it is for resolving issues.  If your lease doesn't have a section on this topic then you need to add to it and you are learning a great lesson.  Our lease, while it started with our lawyers, was created by 20 yeas of experience and hundreds of issues and lessons that have been learned along the way.  It is a living breathing document, change it often.

If your lease doesn't cover this topic then you need to try and come to an agreement with the tenant.  Your goal is to get buy in from the tenant and that will probably require you to be flexible and give a little just as you are asking them to do.

Matt Devincenzo · Answer

To echo what David said above, one disadvantage on BP is it is easy to give the 'business' advise when reality is for many this is a small(er) part of our overall lives. We all hate dealing with nameless faceless entities, and tenants are no different...life happens. The rules are there as a backstop to ensure we're not taken advantage of. I've made less business like decisions, and I sleep great at night, and have had my tenants greatly improve my financial position...that didn't come about by being a stickler for the contract.

Matt Ziegler · Answer

These forms are great, so many good insights and years of experience that are shared freely. I can’t add anything to this thread that hasn’t been said. Welcome to the great world of property ownership, enjoy the ride. Cheers!

Srinivasan Sarnath · Answer

@Dylan Katz I had to go through such a situation where the tenant was in financial difficulty and wanted out early. Though I was going to lose revenue, I did let the person go sooner. I had two reasons, one, if the person left early I could put it in the market quickly and two, I did not want any issues or damage to the property. It would have cost me more with an unhappy and a non paying tenant. You will need to look at all scenarios and decide. I did think of legal action but that would have cost me time and money. In the end, Thankfully it worked. Good luck to you.

Dylan Katz · Answer

@Bill Brandt thanks thats a great point

Eric James · Answer

I agree with figuring out your personal style. There are people who are cut out to be landlords, and people who are cut out to have PMs. The issue really isn't whether you should cut this one tenant a break. That doesn't matter much. The issue is whether you are cut out to enforce policies and be a landlord.

Dylan Katz · Answer

@Joe Martella the potential to unintentionally keep unhappy tenants there financially is not something that I had thought of but great insight, thanks for sharing your experience

How should I handle a tenant request to break lease?

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