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When a tenant signs a fixed term lease, they are providing a commitment to remain in the property for the full term. This provides the landlord a degree of stability and security, knowing that the weekly rental income can be counted on for the duration of the agreed period.
Sometimes however, a tenant may need or wish to break the lease early. While this is possible to do, there are usually costs involved for the tenant as well as the otherwise unanticipated time and effort to put the property to market, run open inspections, and so on to find a replacement tenant.
How Does A Tenant Break A Lease?
A tenant wishing to break their lease should provide as much notice as possible in writing of their decision to leave. This allows maximum time for the landlord and agent to consider and plan the actions they will take as a result.
This may include the landlord considering whether they will continue to rent the property as is, plan for renovations earlier than expected, or even move back in themselves.
Additionally, time and effort is required to prepare and place the property on the market through advertising, while enabling plenty of opportunity for the agent to show the property to potential new tenants before the planned vacate date.
A longer notice period of the intention to break the lease can also help to minimise the amount payable by the tenant for breaking the lease early.
How Much Does A Tenant Have To Pay If They Break A Lease Early?
A lease will often include details of a break fee. The break fee is a penalty the tenant agrees to pay if they move out before the end of the fixed term.
Note: as of 23 March 2020, new mandatory break fees apply when a tenant breaks a fixed term lease early. 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.
These new mandatory break fees effective for agreements entered into from 23 March 2020 are:
Prior to 23 March 2020, break fee rules were as follows:
If the fixed term of the agreement is for three years or less, the break fee is:
If the fixed term is for more than three years and both the tenant and the landlord agree to include a break fee clause, this amount can be written into the agreement.
If the lease does not include a break fee, the landlord could still be entitled to compensation from the tenant including loss of rent, advertising costs and a letting fee (payable if your landlord uses an agent). If a mutual agreement cannot be reached prior, the landlord may claim from the tenant's bond or apply to the NSW Civil and Administrative Tribunal to have the matter resolved.
Tenants must remember that if more money is owed than remains in the bond, their name/s may be listed on a national tenancy database making it difficult to rent elsewhere throughout Australia. In addition, real estate agents typically obtain rental references from a tenant's previous agent when assessing potential applicants for a property. Skipping out on unpaid money is definitely a bad idea!
Can A Tenant Can Break A Lease Without Needing To Pay Money?
In limited circumstances, it is possible for a tenant to break a lease early without penalty.
A tenant can give 14 days written notice to end an agreement early if:
A tenant can give 21 days written notice to end an agreement early if:
If notice is given by a tenant for any of these reasons, the tenant is not required to pay compensation. In these instances, the tenant is only liable for the rent until the notice ends and possession of the premises is handed back to the owner.
Request to End A Tenancy Early Due To Hardship
Outside of the above scenarios, a tenant can apply to NCAT to end a lease early if it can be shown that staying in the premises until the end of the fixed term would cause undue hardship. Note that in this circumstance, rent must continue to be paid by the tenant and penalties may still occur even if it is agreed the tenancy can end earlier than agreed.
Further information on breaking a lease early can be found on the NSW Fair Trading website.
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.