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Termination of Lease

Termination of Lease

A lease is a contractual agreement laying out terms to be adhered to by both the tenant and the landlord within the tenancy period. A lease agreement protects both the tenant and the landlord so that none of the parties fail to meet the agreed-upon obligations. One such obligation is for the landlord to avail the property being leased for use by the tenant for a specified duration in exchange for monetary consideration in the form of rent from the tenant.

Since the lease is a legally binding contract, both parties need to honor it to full term. For residential properties, this may be for a period of one year, one month, etc. For commercial properties, the lease period is, in most cases, longer, 5 years or more, and is usually fixed. That notwithstanding, sometimes life situations may not be very certain, and there may arise circumstances necessitating termination. It follows then that the termination of a lease agreement is just like that of termination of a contract only that this is more specific to property lease agreements.

Reasons to Terminate a Lease

Tenants and landlords can have various valid reasons as to why they want to terminate a lease. Some of the reasons are legally protected while others are a mere breach of contract and hence have consequences. We will consider tenant reasons to terminate lease separately from those of landlords. This guide also outlines reasons to terminate a commercial lease, which may differ a little bit from residential leases.

Tenant reasons to terminate a lease

  1. Violation of the terms in the lease by the landlord.

A tenant can terminate a lease and move out of a property if the landlord is in breach of the agreed terms in the lease. For example, if the landlord does not make repairs to the property making it inhabitable, if they repeatedly abuse the tenant’s right to privacy and keep accessing the property without giving any notice etc. In all these instances, the law allows a tenant to vacate the premises without notice or on shorter notice than usual and the landlord cannot sue them for damages.

2. Military service.

If a tenant has been deployed for military service, the law allows them to terminate the lease without bearing any consequences. You will need to give notice to the landlord (which may be shorter than usual) as well as proof of deployment e.g a letter of the order confirming deployment.
The Servicemembers Civil Relief Act also allows for spouses of a service member who has died while on duty to terminate the lease. This has to be done before one year lapses after the death of the service member.

3. Medical-related reasons.

If a tenant is unable to continue living in their rented property due to medical-related needs such as moving to a group home due to old age-related issues, moving to a rehabilitation center, etc. The law allows for termination of the lease in these instances without the tenant bearing many consequences. The notice required could be as short as one or two months and should be accompanied by either a letter from a medical doctor or court confirming the need to move.

4. Domestic violence

Tenants who are victims of domestic violence as well as any other kind of harassment that infringes on their personal safety are legally allowed to terminate a lease agreement without being sued for compensation. They will need to have reported the violence/ harassment to the police or relevant authority and have a protection order issued to them. Copies of these documents together with a one-month notice are given to the landlord to effect termination.

5. Natural disaster

A tenant can also terminate a lease agreement in the event of natural calamities that significantly damage the property hindering occupancy.

6. Personal reasons

Personal preferences can lead to termination of a lease. For example, if a tenant wants to move to a bigger house, job transfer, a stubborn roommate, etc. However, it is important to note that personal preferences are not legally protected reasons. Once a tenant terminates a lease agreement due to such, they are liable to pay the landlord damages for breach of contract.

Landlord reasons to terminate a lease

  1. Non-payment of rent.
    It is expected that a tenant will meet their obligation of paying the agreed amount of rent in due time. Failure to do so can make the landlord terminate the lease. To do so, a landlord must first follow the terms as agreed on the lease to establish when rental arrears are deemed to fall due and if there is any grace period. If the tenant still does not pay rent, the landlord then should send them a Pay Rent or Quit Notice. If the tenant does not remedy this even after being served with the notice, the landlord starts the eviction process which is terminating the lease.
  2. Violation of the terms in the lease by the tenant.

A tenant who violates the terms as agreed on the lease can push a landlord to terminate the lease without any further consequences. For example, if a tenant insists on having a pet in a pet-free property. Also, if the tenant violates state laws for example by conducting illegal activities on the premises such as selling drugs, terrorism activities, etc. the law allows for the landlord to terminate their lease agreement.

3. Redevelopment.

A landlord may wish to redevelop an outmoded premise. This is especially so if the cost of repairs outweighs its value or if the premise cannot be economically utilized unless rebuilt or majorly altered. However, a court of law must authorize this reason. The landlord is then obligated to compensate the tenant for disturbance especially if their lease term has a long period to expiry.

Reasons to terminate a commercial lease

  1. Insolvency

Tenants in a commercial lease may apply this reason to terminate their lease agreement if an event of financial distress that culminates to insolvency. Liquidators or Bankruptcy trustees/administrators can disclaim a commercial lease if they find the obligation arising from it to be very onerous. However, this must be guided by insolvency laws.

2. Expiry

Upon expiry of the lease term, a commercial lease automatically terminates unless the tenant has a security of tenure which grants them the right to continue occupying the property after expiry.

3. Break clause

A break clause allows either the tenant or landlord to have one chance or a series of intervals before the lease expires within which either party can terminate the lease agreement. This provision is exercisable after the party utilizing it meets certain conditions e.g giving a notice. For tenants, a break clause is important especially for business start-ups who do not want to tie themselves up with a lease obligation for a long duration. It is equally important to businesses that anticipate thriving within a few years and may need to expand. For landlords, having the break clause helps them get off a stubborn tenant or free up the property to a higher paying tenant if the property’s value has significantly increased.

4. Force majeure

A force majeure clause in a lease protects the tenant and landlord from factors out of their control and which cannot be anticipated e.g riots, acts of terrorism, floods, earthquakes, pandemics, etc. This provision allows for the suspension or exclusion of an obligation from both or either party in the event of any of the listed factors. In extreme situations, exercising force majeure may lead to termination of the lease agreement especially if the effects are very severe or irreparable.

Steps to Terminate a Lease?

The first step to take when terminating a lease is giving adequate notice to the other party. The notice should be properly written making sure to include the date, contact information, reason to terminate the lease, signed, and well delivered. Copies of any documents that are proof of the reason to terminate the lease should be attached to the notice.
The notice should also be guided by terms as agreed upon on the lease and applicable laws.

The next step is to negotiate with the other party to reach a consensus on what is the best way forward. Depending on the reasons provided, some landlords are lenient and willing to agree to let the tenant vacate within the notice given at no further cost. Negotiations can also provide alternative solutions. For example, a landlord may agree to have the tenant find someone else to re-rent the property instead of paying for damages. If this step is impossible to happen e.g in the case of a stubborn tenant, a landlord can seek legal redress and start the eviction process after the notice period lapses without any remedy from the tenant.

Once both the tenant and landlord have a mutual agreement on the way forward, the tenant may then make plans to vacate the property and pay off the agreed amount of compensation. Similarly, if it is the landlord who terminated the lease, they should also make plans to facilitate the tenant move and pay any dues e.g security deposit.

Costs incurred when terminating a lease

Terminating a lease can be a very expensive activity. This is especially so if the reasons are not legally protected or are outside of what is mutually agreed on in the lease agreement.

Generally, the costs incurred by a tenant who terminates the lease are;

  1. An early termination fee which may have been agreed upon under the termination clause in the lease. In most cases, this is the equivalent of one or two month’s rent.
  2. Other situations may call for paying rent for the unexpired lease term. This is common with commercial leases. The law requires landlords to mitigate damages by finding another tenant to take up the property.
  3. Any additional costs incurred in the process of re-renting (agent fees, advertising costs) are passed on to the vacating tenant. If the landlord finds a tenant who will occupy the property for the remaining lease term duration but at a lower cost of rent, the difference may also be passed on the vacating tenant.
  4. In extreme cases, where the landlord has to sue a tenant who has illegally terminated a lease in a court of law, the amount payable in damages may include their attorney’s fees.

Tips for premature termination of lease

  1. It is good for tenants and landlords to keep all records of communication or transactions between them. This comes in handy when either party wants to show proof for a reason to prematurely terminate the lease.
  2. The landlord is expected to apply reasonable measures to find another tenant to re-rent after the current one terminates the lease. This is in other words called mitigating damages and it is an expected duty. For example, if a landlord who makes no effort to find a new tenant can have their case denied in a court of law for failing to mitigate damages. However, the law allows landlords to pass on all the costs associated with making the efforts to re-rent to the tenant in breach. An example of these costs is advertising costs.
  3. Whether the reason to terminate the lease is legally protected or not, any party terminating the lease should always give written notice to the other. In some situations, depending on the reason, you will find that the notice period is shorter than usual.

Termination of lease FAQs

  1. Does terminating a lease reflect on my credit history?

Yes, it can. If the reason for the termination of the lease is due to nonpayment and this is not remedied, this will reflect badly on your credit history.
Also, for landlords who report rent to credit agencies, they might have reported the expected amount up to the expiry of the lease term. This means any unpaid rent after termination may as well be reflected in your credit score.

2. What happens to my security deposit after terminating a lease agreement?

As discussed in the Rental Application guide, a tenant is in most cases expected to pay a security deposit before moving into a rental unit. This is used to cater for costs that are incurred to reinstate a rental unit to the state it was in before occupancy. However, landlords should not use a security deposit for normal property depreciation costs.

The security deposit can also be applied to offset any rental arrears, or applicable compensation costs payable by the tenant if they terminate the lease. However, if it is the landlord who is in breach, they should return the security deposit to the tenant within thirty days.

3. Is the loss of a job a legally allowable reason to terminate a lease?

Losing a job may necessitate a move of the house either to another with fairer rent rates or to another location with potential job opportunities. This may then call for a termination of the existing lease agreement. In most cases, loss of income/job is not a legally protected reason as it may be prone to abuse. However, one can consider other alternatives in the event of a job loss such as; negotiating with the landlord for a friendly rent payment schedule, subletting the rental unit in part (must check if this is covered in the lease agreement), etc. Most landlords may be open to negotiating alternative solutions other than having to start the eviction process due to the non-payment of rent.

It is also good to note that some states allow for termination of lease due to job transfer by a current employer. However, tenants must still give the allowed notice to the landlord or else be liable for compensation costs.

4. What options are available to cushion me against compensation costs /damages to the landlord?

Some landlords may be open to the idea of you finding a tenant to re-rent once you vacate. This is possible especially if it had been anticipated and a clause indication so captured in the lease. Also, a landlord may favor this idea more if the new tenant is willing to occupy the property at favorable terms than those previously in place.

One can also use their security deposit to offset the amount payable as compensation costs. However, in most cases where the tenant is in breach, the compensation costs will be more than the security deposit.

Summary

Both the tenant and landlord cannot change the terms to the lease once signed unless they are in mutual agreement. It is therefore a best practice, especially for tenants to read through the lease document properly and clearly take into consideration the remedies and consequences of being in breach of the lease terms. Tenants leasing property for commercial use and foresee the possibility of business not doing so well in the future can take up short-termed lease agreements as opposed to long-term fixed leases or negotiate for a break clause as explained in this guide.

Landlords should not exploit tenants who terminate lease while seeking compensation. They should aim to keep the amount chargeable as minimum as possible not to view it as a chance to profiteer. Landlords should also not terminate a lease agreement based on discriminatory reasons such as a tenant’s disability, religion, or race.

Different states may have different acceptable methods and laws guiding the termination of lease agreements. It is therefore prudent to consult with your state laws before embarking on lease termination.

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