Should You Ever Allow a Tenant to Break Their Lease?

What is the cardinal rule of investing? Some say it is keeping an occupied unit. This makes plenty of sense, as high tenant turnover can put a major damper on your cash flow. However, I would argue that there are instances where taking steps to UN-occupy a unit makes more financial sense. Any investor who has dealt with an eviction is likely to agree with me.

But eviction isn’t the only reason that a unit becomes unexpectedly and prematurely vacant. There are times when tenants decide to break their leases, and it’s up to you as the owner to decide whether they should be penalized for it, according to the terms of your lease agreement.

Some property owners take a hard-nose stance and say, “Tough noogies, Tenant. You break your lease, you pay the price.” Others go the opposite direction, letting leniency take over completely. I’m more a middle-of-the-road guy, and I believe that different situations call for different actions. In fact, there are some instances that, in my opinion, are perfectly legitimate reasons for wanting to break a lease, and I do not penalize my tenants who find themselves in these situations.

Situation 1 - Their job transfers them.

Is it really fair to punish someone for something that is out of their control? Nope. Not to me, anyway. Yes, this does place a burden on the property owner, because they’re still stuck with a vacant unit, but most times, there is ample time to find a new tenants. Transfers don’t usually happen overnight, so if your tenant gives you plenty of notice, you can start marketing the unit right away. You can also include a “job transfer” clause in your lease agreement, stating that the transfer must be more than x miles away for the lease to be broken without penalty, and the renter must provide maximum notice.

Situation 2 - They lose their job.

This one really hurts - for both of you. And the reality is that their sudden loss of income may be a weeks- or months-long problem. In these situations, it’s often best to just let the tenant move on. You can’t get money out of someone who is not making any, so the sooner you part ways, the sooner you can get a tenant who IS generating an income, and thus, paying rent.

Situation 3 - Tragedy strikes.

Life happens. And unfortunately, some of those happenings are tragic. Death, illness, divorce - all of these are circumstances that some of my tenants have dealt with. And all of them have resulted in sudden and drastic changes in income and general living situations. For me, I don’t think it’s right to penalize them for breaking a lease when they are dealing with life-altering changes that make paying rent a much lower priority.

Situation 4 - They suck as tenants.

Every investor has had that renter that just plain ol’ sucks. Nothing is ever good enough for them, and no matter what you do, they’re unhappy. Sooner or later, both of you will reach a point where it’s mutually beneficial for you to end your landlord-tenant agreement and go your separate ways. If the person is truly a pain in the neck, it might make more sense to cut your losses and end the relationship so you can find a better fit.

So, what is the REAL cardinal rule of investing? The answer is to do what it takes to make a profit (within the confines of the law and basic human decency, of course). Sometimes, this means letting a tenant break their lease, because it will be more economical in the long run, or it’s just the right thing to do.