One of my most-read posts is Breaking a Lease. So I thought it would be appropriate to mention today that one of our tenants just decided to break theirs. As with every situation, the details vary, so before we talk about how we're going to resolve the issue, let's go through the specifics. first let's discuss the contractual obligations.
1) Their original lease ends on June 1st. So they haven't even yet began the second lease.
2) They agreed verbally to a new lease, but haven't signed one yet. In April they agreed to a 1 year extension at a minor (less than 3%) rent increase. We sent them a copy of the lease to sign and return, but they hadn't done that as of yet.
3) They want to move out at the end of June. They are moving into their new place at the end of June/beginning of July.
Let's start by discussing the implications of the situation. First, we have no written contract, but there is a verbal one. The tenants agreed verbally to stay in the place another year, and as the law in Virginia states, "Rental Agreements" can be oral. Or, better put by a pamphlet provided by Arizona State University, "A verbal contract is just as binding as a written one, but its terms may be more difficult to prove."
So by that philosophy of thought, we have an oral binding agreement to lease to them for another year. So we look at the Early Termination clause within our lease:
EARLY TERMINATION. Tenant may choose to terminate the Agreement before the natural expiration of the Agreement. To exercise this option, Tenant must submit his intentions, in writing, to Landlord at least thirty (30) days before termination and must pay a penalty equal to a single monthly installment in addition to their final month’s rent. In paying this penalty, the Agreement will be terminated and the Landlord will not hold the Tenant accountable for any of the monthly installments remaining in the term of this Agreement.The termination clause clearly states that the tenants are responsible for notifying us at least 30 days before they leave (which means that they earliest they can terminate would be June 30th), and that in addition they have to provide 1 month's penalty.
So what do we do?
There are a couple of options here. The first is that we could simply agree with them to nullify the oral agreement, and they could complete their lease on June 1st and we could look for new tenants. But this isn't good for either party. They have nowhere to stay until their new place opens up, and we are on very short notice to find someone new.
Secondly we could just enforce the new oral lease. They would be responsible for giving us a month's penalty in addition to paying for June. Personally I think our early termination clause is fair (only a single month's worth of penalty and 30 days notice), and it's the simplest answer. Of course, if they dispute it then we have to defend an oral contract.
Lastly we can compromise on an agreement that both parties are willing to sign.
The agreement that Biff came up with was that they pay for June, and then pay for July when they leave. In return we begin advertising the property immediately and try to gain a tenant. If we secure a tenant before July ends, we will refund them a pro-rated portion of their penalty. For example, if we have a new tenant move in in mid-July, then our current family will receive back 50% of their penalty.
The benefit of this agreement is that both parties are satisfied and will leave happy. We only lose income if we can't find a tenant in the next two months), and they retain a fair chance at keeping a majority of their penalty.
(As we speak the rental sign has been placed in the front yard of the property and Biff has placed an internet ad on the website that has been the most successful for us thus far. We'll work hard to return a majority of that penalty back to our former tenants.)
As far as I can see, Biff and I are left with only one downside. It's widely acknowledged that summer is the best time to locate tenants (due to people moving while children are not in school, college graduates moving, etc.). And while I don't have any statistics that prove that assumption, I do believe it. So this agreement pushes our "locate new tenants" time to late and later in the summer.
However, by both parties compromising on their terms to find a middle ground, we've actually created the oft-mentioned, rarely achieved win/win deal.
-In case you were curious, our tenants decided to move out because they, as military, were offered on-base housing more than a year earlier than expected. In addition they just found out that they are pregnant and will be needing some more space. They've been outstanding tenants for us, and we wish them the best with both their new home and the new addition to their family.