New Break Fees For Fixed Term Lease Agreements From 23 March 2020

Among many residential tenancy law changes being introduced from 23 March 2020 in NSW, there are changes to mandatory break fees i.e. the compensation the tenant agrees to pay if they move out before the end of a fixed term lease agreement.

Prior to these 23 March 2020 changes, break fees for fixed term leases with a duration of 3 years or less were:

• Six weeks rent if the tenant moves out in the first half of the fixed term
• Four weeks rent if the tenant moves out in the second half of the fixed term

From 23 March 2020 however, new mandatory break fees will apply. The new break fees will apply to all new fixed-term agreements that are 3 years or less in duration, and will apply to all agreements entered into from 23 March 2020 onwards.

The new mandatory break fees are:

• 4 weeks rent if less than 25% of the lease had expired
• 3 weeks rent if 25% or more but less than 50% of the lease had expired
• 2 weeks rent if 50% or more but less than 75% of the lease had expired
• 1 week rent if 75% or more of the lease had expired.

So, as an example, a tenant paying rent of $500 per week who breaks a 12 month lease after 7 months would have to pay a break fee of $1,000 (two weeks rent). If the lease is broken after 10 months, a break fee of $500 (one week of rent) would apply. 

This is a significant change. Previously - prior to the 23 March 2020 changes - in both of the above examples the applicable break fee would be $2,000 (four weeks rent). 

We expect this change may bring an increase in the number of tenancies ended prior to the end of the agreed fixed term, as the compensation payable for breaking the lease early can be as little as 25% the amount it had previously been. 

Read more about the NSW residential tenancy law changes coming into action from 23 March 2020.