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In the current market we've seen an increase in the number of tenants wishing to end a tenancy before the end of a fixed term lease. This is often due to the tenants finalising purchase of a property to live in, a relationship breakdown, or some other change in circumstances.
In this article we discuss the misconception many tenants have around break fees, and our response to tenant requests to have the break fee waived.
Following the legislative changes in March 2020, the break fees payable in this situation are significantly less than they used to be. In the past, tenants typically needed to pay either 4 or 6 weeks rent as the break fee, while in the majority of cases now a lease break can incur a fee as little as one week of rent (if broken in the last 25% of the lease period).
"Do I Have To Pay The Lease Break Fee?"
Despite having signed a lease agreement outlining the applicable break fee, tenants very often ask the following questions when advising they will be breaking their fixed term lease:
These questions are also often accompanied with supporting comments such as "we always paid the rent on time", "we're giving plenty of notice", "it won't take long to find a new tenant", etc. - as justification for the request to have the break fee waived.
Our Response To Requests To Waive The Lease Break Fee
Responding to these questions, we remind tenants that:
The Break Fee Is Not A Financial Benefit To The Landlord
We have had some tenants in the past believing that the break fee should not be applied because the landlord would not be without rent for long - if at all - and could therefore potentially "make money" from the tenants leaving early.
What needs to be clearly understood is that the break fee is not a financial benefit to the landlord, and Secton 107 the Residential Tenancies Act consistently refers to the break fee as a "compensation" for breaking the agreement.
It is not intended to cover the full costs incurred by the landlord in finding a replacement tenant, including advertising costs, leasing costs and potential vacancy period. In fact in most cases the applicable break fee does not come close to covering these costs.
There Are Significant Non-Financial Impacts Of Breaking The Lease
There can also be non-financial impacts of breaking a lease early, which the tenant is not privy to. As an example, the landlord may have been planning to return to the property at the end of the fixed term after the end of a work placement. Filling the property for a short term in between a premature lease break and before the landlord's return is not ideal and at times very difficult.
Another common example is that the landlord may be planning for the necessary sale of the property, timing of which can be very sensitive and highly disrupted if needing to happen earlier than anticipated due to a lease break.
These, and countless other examples not typically shared with the tenant, highlight the relative insignificance of the applicable break fee as compensation for the circumstances of the landlord when the agreement is broken earlier than committed to.
We provide expert property management in Newcastle and Lake Macquarie. Based in Charlestown NSW, we have been delighting property investors with our personal, professional service since 2011. If you found this article helpful or enjoyable, please subscribe or share it with someone else who may benefit.
Carnelian Property Management Newcastle NSW
We are a family-owned and run Charlestown real estate agent offering expert property management across Newcastle and Lake Macquarie.