Navigating A Break-Lease

The Background

We recently had a current tenant enquire about breaking their Lease agreement. He and his partner had gone separate ways and were not on speaking terms. This presents a difficult scenario as both parties are registered as tenants on both the Lease and the Bond documentation. Let’s walk through the scenario when a tenant wants to break their Lease and what actions need to be taken.

The Task

Our task as Property Managers is to ensure that under no circumstances are our Owners out of pocket with a break-lease matter and that there is no additional burden placed on them during the process.

To achieve this, we require the existing tenants to:

  1. Continue to pay rent and bills until we find suitable replacement Tenants.
  2. Pay the cost of re-advertising the property.
  3. Pay the cost of leasing to new tenants.

AARE in Action

To commence, AustAsia Real Estate advised the Owner that the tenants are considering breaking their Lease agreement. With the rent continuing to come in each week, we assured the Owner the matter is under control. We advised the Owner they will be ‘kept in the loop’ throughout the entire process.

We then communicated the following to both of the existing tenants via email:

  • All tenants continue to be responsible to pay the weekly rent until a new tenant is in place;
  • All parties on the Lease agreement must execute the REIWA form titled “Request for Consent to Termination by Tenant During a Fixed Term Agreement”. This form specifies the date the tenants will provide vacant possession of the property or if they choose to reside in the property until they are replaced by a suitable new tenant;
  • All tenants involved in the Lease are responsible to pay the relevant Break Lease fees and advertising costs;
  • Upon receipt of all of the costs from the outgoing tenant/s associated in a Break-Lease matter, we will re-advertise the property and the property will be available to show to prospective new tenants. If the existing tenants choose to reside in the property whilst we conduct property viewings, they must allow access the property at least once a week;
  • Should we then receive a suitable Application at the same rental amount, the new applicant/tenant will be asked to accept the property as per the ingoing Property Condition Report and pay the Bond amount accordingly;
  • Should we receive a Rental Application offering a lesser amount of Rent, the current tenant shall be responsible for the difference from the beginning of the new tenant’s Lease agreement up to their own current Lease agreement expiry date;
  • If the tenants that are Breaking Lease cause no damage to the property throughout their tenancy, they may recover their Bond amount at the expiration of the Lease Agreement;
  • If the current tenants are not able to continue paying their Rent, they will forfeit their Bond funds. In which case, we have no other choice but to apply to the Magistrate’s Court under a Form 6 ‘Application for Disposal of Bond Money’ to recover the unpaid rent.
  • If required, the Bond funds are allocated to contractors for cleaning costs or maintenance, with the balance allocated to the Owner to settle unpaid rent and/or outstanding utilities;
  • If these costs exceed the value of the Bond held by us, upon instruction from the Owner, we will make a claim to the Magistrates Court for damages or compensation;
  • If the current tenants pay their rent on time to the end of their Lease and there is no damage identified in the Final Bond Inspection, or other outstanding costs (i.e. utilities), they can receive their full Bond back.

The Result

The existing Tenants agreed to all the above stipulations. They paid all the associated fees in the Break-Lease and provided vacant possession of the Property. Upon inspection by our Property Manager, it was agreed the tenants had complied with their obligations. They handed over the Property in good condition as per the Property Condition Report.

The new tenants signed the Lease and paid their Bond. They paid two weeks rent in advance and entered the property all within the same week. This was a very successful Break-Lease with no negative financial impact on the Owner.

The new tenants are respectful of the property and pay their Rent in a timely manner. Our prompt and effective attention helped to avoid a potentially stressful situation. We ensured the Owner had no financial disadvantage from the Break-Lease. The existing Tenants were happy to move on and the new Tenants are very happy in their new rental home.

Important information and disclaimer

This publication has been prepared by AustAsia Group including AustAsia Real Estate Pty Ltd (REBA Licence No. RA1736).

Any advice in this publication is of a general nature only and has not been tailored to your personal circumstances. Accordingly, reliance should not be placed on the information contained in this document as the basis for making any financial investment, insurance or other decision. Please seek personal advice prior to acting on this information.

Information in this publication is accurate as at the date of writing, 20 February 2020. Some of the information may have been provided to us by third parties. Whilst it is believed the information is accurate and reliable, the accuracy of that information is not guaranteed in any way.

Opinions constitute our judgement at the time of issue and are subject to change. Neither the Licensee nor any member of AustAsia Group, nor their employees or directors give any warranty of accuracy, nor accept any responsibility, for any errors or omissions in this document.

Any general tax information provided in this publication is intended as a guide only and is based on our general understanding of taxation laws. It is not intended to be a substitute for specialised taxation advice or an assessment of your liabilities, obligations or claim entitlements that arise, or could arise, under taxation law, and we recommend you consult with a registered tax agent.