What Happens with Break Leases in a Weaker Rental market?

What Happens with Break Leases in a Weaker Rental market?

What Happens with Break Leases in a Weaker Rental market?

It seems that Tenants seeking to “break their lease” happen more at the end of the tourist season due to varied reasons for them i.e job transfer, reduction in work hours, moving back home due to a change of plan.  A Break Lease is when a tenant makes the choice to vacate even though the fixed term has not yet ended. Owners feel disappointed to be losing their tenant before the end of the signed agreement, but cannot force a tenant to stay but neither can the tenant expect to simply walk away from a fixed term tenancy without any further financial obligations.
 
With break lease scenarios, some tenants intend to vacate quickly; others give lots of forewarning; and others will stay until a new tenancy is secured and then organise themselves to vacate just beforehand.  Owners are required to actively try to relet the property ie a duty to mitigate (avoid or reduce) the tenant’s costs. However the Owner (or their Agent) is not obliged to lower their standard of tenant screening, or accept a new tenant who does not meet the usual selection criteria, merely to relet the property quickly.
 
What happens in a weaker rental market? If the market is slow, as long as the owner and their agent is being proactive in seeking to relet the property the lessor could still reasonably expect the ‘break lease’ tenant to compensate them. The Tenant is obliged to pay any shortfall of rent where the Owner has had to accept a new tenancy at a lower rent in order to relet the property. The Tenant is also obliged to “maintain” the property ie cover the cost of ongoing tenant obligations under the terms of the tenancy agreement to ensure the property remains in a rentable condition. Examples might include pool cleaning/chemicals, or gardening, now not being completed by the tenant if they have already moved out of the property.
 
What happens if the same rent cannot be achieved? if for example a property was rented at $500 per week but the market has slowed and the same property is now only able to achieve rent of $450 per week, then the ‘break lease’ tenant is expected to compensate the lessor for the shortfall until the end date of their fixed term. The reality is that it is increasingly challenging for Agents  to recover the compounding amount from a tenant who has already vacated and does not have the funds or a job. In addition the property could be sitting vacant for several weeks which is not desirable in any location. The sooner a new tenant is residing in the property, the better it is for all parties.  One option is to advertise the property at the likely achievable rent, and the ‘break lease’ tenant compensates the Owner for the short fall up from when the new tenancy commences through to the end date of the ‘break’lease’ tenant’s fixed term. This means a total sum would be calculated, to be paid in one amount and deducted from the bond – assuming the bond is not required for other things as well.
 
The security bond cannot be finalised until the final unpaid rent figure is known - which won’t be until the property is relet. As your Agent we shall always seek and act in accordance with your lawful instructions. We also ensure the tenant is aware that their cooperation in allowing our Agency access to show the property to prospective new tenants will benefit them as well as ensuring the property is well presented. At the same time we also outline to  the tenant the costs they are reasonably going to be expected to reimburse to the owner.
Even though we do all of this, occasionally tenants do not adhere to their obligations and we need to seek an order from the Court Tribunal.  This is a very

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