A lease termination occurs when a landlord or tenant ends a lease early. There are several reasons either party might terminate a rental agreement early, such as lease violations and other factors.
Real estate professionals must be familiar with how a lease termination works in rental real estate. You’ll need to learn from skilled experts to ensure you understand this key concept. Luckily, I have years of hands-on experience to help guide you through how lease terminations work.
In this post, we’ll define lease terminations, give examples of reasons for termination, and explain the termination process. Keep reading for all the information you need to know!
What Is a Lease Termination?
A lease termination occurs when a landlord or tenant ends a rental agreement before the end of the lease term. While breaking a rental agreement is not allowed in most cases, there are a few circumstances where it is acceptable.
Let’s look at some examples of why a landlord or tenant might end their lease early.
Why Would a Landlord Terminate a Lease?
A landlord may terminate a lease if their tenant violates the terms of the agreement. Examples of common lease violations by tenants include the following:
- Habitually late payments
- Failure to pay rent
- Inviting long-term guests to stay in the rental unit
- Damaging the property
- Housing unauthorized pets in the rental unit
- Participating in illegal activity in the rental unit (i.e., selling drugs)
Why Would a Tenant Terminate a Lease?
A tenant may terminate a lease if the landlord violates the agreement. The most common examples of lease violations by landlords include:
- Entering the property without giving reasonable notice
- Failure to maintain the property
- Not making necessary repairs when requested
What Is a Lease Termination Notice?
A lease termination letter is a written notice by a landlord or tenant to let the other party know they plan to end the lease. Tenants cannot break a lease agreement without giving termination notice, nor can a landlord kick out a tenant without giving notice.
What To Include In a Lease Termination Notice
A lease termination letter should include the following details:
- Name of tenants and landlord
- Property address
- Informing the other party that you are ending the lease early
- The reason for early lease termination
- The termination date (the date by which the tenant must vacate the property)
- Acknowledging the consequences for breaking the lease (if applicable)
- Name and signature
How Does the Termination Date Work?
The termination date is the day the tenancy ends, and the tenant must vacate the premises. Tenants and landlords must send or deliver the termination notice several days before the termination date. This time frame gives each party ample time to leave the property or make reasonable efforts to find new renters.
Eviction vs. Lease Termination: What’s the Difference?
Many people use the term “eviction” and “lease termination” interchangeably, but they are not synonymous.
A lease termination notice is generally the first step in the eviction process. After the tenant receives the written notice, they can gather their belongings and vacate the premises. This is an example of a lease termination where everything goes smoothly.
However, if the tenant refuses to leave the rental unit, they will have to be evicted. An eviction occurs when the landlord asks a court to demand that the tenant leave the property. In the case of an eviction lawsuit, a law official will generally ensure that the tenant leaves and takes their belongings.
What Is an Eviction Notice?
An eviction notice is a written document that lets a tenant know they must vacate the premises. This type of document is often called an “incurable notice,” as there is no further action the tenant can take at this point to avoid eviction.
What to Include In an Eviction Letter
An eviction letter should include the following information:
- Name of tenants
- Property address
- The date
- The reason for eviction
- Termination date (when the tenant must vacate the property by)
What Are Good Reasons to Terminate a Lease?
In most cases, tenants are legally required to uphold the terms of their rental agreement. However, there are a few circumstances where a tenant can terminate a lease without consequence.
For example, a tenant can legally terminate their lease under the following circumstances:
- If the rented property is not up to habitability standards
- If the property owner is harassing the tenant
- If the rented space is illegal
- If the tenant is a victim of domestic violence
- If the tenant is an active-duty military member
Does a Lease Termination Go On Your Record?
A broken lease does not automatically show up on a tenant’s record. However, if the tenant has an outstanding debt with the landlord, it will negatively impact their credit score.
For example, when a tenant breaks a rental agreement without good reason, they still have to pay the remaining rent for the lease term. Tenants may also have to pay a termination fee plus fees for potential property damage. If the tenant fails to pay back these debts, their credit score will be impacted, and they may develop a bad reputation as a renter.
Does a Tenant Always Have to Pay the Remaining Rent?
If a tenant breaks their lease, they are responsible for paying the remaining rent until the landlord finds a new tenant. However, most states require that landlords make reasonable efforts to find new renters as quickly as possible.
If a property owner allows the property to be vacant for years and then sues the previous tenant, this would be considered unreasonable.
What Are the Rules for Security Deposits?
A security deposit is a tenant’s payment to a landlord before moving into a rental unit. The purpose of a security deposit is to cover any potential damages that a tenant may make to a property. If a tenant legally terminates a rental agreement and has kept the property in good condition, they should still receive their security deposit back from the landlord.
How Does a Security Deposit Work?
A new tenant must pay the landlord the security deposit before they get the keys to their property. Typically, security deposits are equal to one month’s rent. However, this can vary depending on state laws and the terms of the rental agreement.
At the end of the rental period, the tenant’s security deposit will be returned if they have kept the property well-maintained. They usually get the deposit back thirty days after moving out.
However, the landlord may not return the tenant’s security deposit under the following circumstances:
- The tenant still owes unpaid rent
- The property is damaged
- The tenant owes money for utilities
- The tenant ended the lease early without termination notice
- The tenant got evicted
- The tenant did not do an exit inspection with the landlord
Frequently Asked Questions
Let’s address some FAQs real estate students frequently have about lease terminations.
How Much Does It Cost to Terminate a Lease?
The amount it costs to break a lease depends on state laws and the exact terms of the rental agreement. In many cases, the landlord will give the tenant an option to pay an early termination fee.
Typically, a termination fee costs around one to two months of the original lease’s rent amount.
What Is An Alternative to Breaking a Lease?
There are cases where a tenant may wish to terminate a lease early to move to a new place. A tenant may not want to break their lease and harm their credit, but they also cannot afford to pay rent for two leases.
In this case, subletting the rental unit is an excellent option. A sublet is when the original tenant finds a new tenant that the landlord can rent the property to. This allows the original tenant to terminate their lease without facing negative consequences.
What to Know Before the Real Estate Exam
A lease termination occurs when a landlord or tenant ends a lease agreement early. If either party violates the lease or has good reason to end the lease agreement, they may provide a termination notice.
Now that you’re caught up on how lease terminations work, you’ll have no problem defining this term for the real estate exam. Learn other vital terms using our online Real Estate Flashcards and feel prepared for the big day!