One of the key benefits to having a lease in place is having peace of mind that you have a place to call home for the term of the lease (12 months, 18 months, 24 months, etc.). The owner can’t raise your rent nor can they ask you to move out. This is great for you, the resident! However, what happens if life changes on your end and you have to break the lease? Life events such as loss of a job, job relocation, family emergencies, etc. can make it to where you may need to break the lease. While no one goes into a lease expecting to break it, it is important to understand what the obligations are in breaking a lease to be able to plan accordingly and minimize any potential losses. The following covers what you may want to consider if you ever need to break a lease.
OWNER RESPONSIBILITY
There are two facts to point out when it comes to breaking a lease. The first fact, it is true that a resident is financially responsible for the term of the lease. HOWEVER, the second fact is that a property manager is also responsible for helping a resident mitigate the loss experienced. This means that a property manager can’t sit around leaving the rental home vacant expecting to collect rent from a resident that has moved out. The property must proceed with their Leasing Process to find a new resident as soon as possible and once the property is rented then this removes the requirement of you having to pay rent as rent cannot be collected from two separate residents.
RESIDENT RESPONSIBILITY
The key question from any resident having to break the lease is, “What is my financial responsibility if I have to break the lease?” In short, a resident is responsible for any expense associated with re-renting the property to make sure that there is no financial loss to an owner. While this may sound extensive, it really boils down to three basic categories:
Standard Move Out Charges: When a resident moves out regardless of whether it is at the end of a lease or if breaking a lease, there are some possible standard move out charges. You can obtain more information on this by reading our Move Out Process.
Leasing Costs: When an owner has to list a property for rent, there is a leasing fee to lease the property paid to the leasing broker. Leasing fees are calculated as a percentage of the annualized rental amount collected. While this fee varies in the marketplace, for our company it is 5.9%. As an example, we will use the monthly rent of $3,500. This Leasing Fee comes out to $2,478 ($3,500 x 12 = $42,000 x 5.9%).
Vacancy: A resident will be responsible for any vacancy time from the day they move out up to the day prior to the new resident moving in. While it is impossible to predict how long or short this vacancy may be, in the times this has occurred to us the time frame is usually 2 – 4 weeks. Using a 30-day month and an example of $3,500 this equates to $1,633.33 for 2 weeks up to $3,266.66 for up to 4 weeks.
Example: For this example, we will use $3,500 as the rent amount as well as a conversative amount of 4 weeks of vacancy to error on the high side. Assuming no standard move out charges plus a leasing fee of $2,478 plus a vacancy of four weeks totaling $3,266.66 the total comes out to $5,744.66 (less then 2 month’s rent).
GAME PLAN
Since a resident is responsible for the vacancy period of time, it is in a resident’s best interest to reduce this timeframe as much as possible. For this to happen the best course of action is to work with us to have the property go on the market approximately 30-days prior to the move out. We can work with the residents to show the property via Open House on the weekends. The goal during these 30 days is to go through the leasing process so that we can line up a resident for move in right after The Turn Process. The sequence would look as follows:
Leasing: We would list the property approximately 30 days prior to the move out and go through the leasing process.
The Turn Process: We would line up the vendors to get the property rent-ready starting right after the move out. The average turn can take 10 – 20 days.
Resident Move In: The new residents can be scheduled to move in right after the turn process.
CONCLUSION
Life can sometimes be unpredictable. Having to break a lease is never ideal. However, understanding what the financial responsibilities will be as well as working with us to get the property rented out as quickly as possible will help you minimize any financial loss.
