When a Tenancy Agreement Finishes Early

Property Management, Tenants,  Principals,  Property Managers

The majority of tenancies run to the end date and beyond, but when a tenant or property owner’s circumstances change, the tenancy agreement may have to end earlier than expected.

The Residential Tenancies and Rooming Accommodation Act 2008 (RTRA Act) section 277 outlines the ways a residential tenancy agreement can end. Although the RTRA Act does not specifically refer to break lease, the lease is broken when a fixed term agreement is ended before the end date without grounds (i.e without sufficient reason) and compensation may need to be paid.

Legislative requirements

Notice to end an agreement must be provided in writing and minimum notice periods apply. The Residential Tenancies Authority (RTA) strongly encourages parties to communicate their intention of ending the agreement as early as practicable for the best outcome.

If the tenant breaks the lease or ends a fixed term agreement early, they may have to pay reasonable costs incurred by the lessor in re-letting the premises. This may include:

  • loss of rent until the tenancy end date or until premises are re-let to a new tenant, and
  • reasonable associated expenses incurred in re-letting the premises, such as a re-letting fee and/or advertising cost.

The agent/lessor is required to take steps to mitigate loss and expenses under section 362 to reduce costs involved, thereby minimising the compensation to be paid by the tenant.

If the property owner wants to end the agreement early, they may negotiate with the tenant to mutually agree to end the tenancy. The tenant could seek compensation which may include financial assistance with removal costs to find another rental property.

If a tenant or lessor is suffering excessive hardship, they can also make an urgent application to the Queensland Civil and Administrative Tribunal (QCAT) for an order to terminate the agreement.

Scenario 1

The tenant has resided in the property for three years with fixed term agreements re-negotiated every six months. The current agreement is ending on 1 June 2021, but the tenant has purchased a property and wants to vacate on 1 May 2021.

This was expected because the tenant kept the property manager well informed throughout the process. The tenant had even considered properties being sold by the same agency.

Options here include:

  1. The tenant provides notice for ending the tenancy agreement on 1 May 2021, essentially breaking the lease. The agent/lessor seeks compensation for reasonable expenses incurred and loss of rent.
  2. The agent/lessor and tenant negotiate and mutually agree to end the tenancy agreement early. The terms of agreement are put in writing and the tenant does not provide a Notice of intention to leave.
  3. The tenant could apply to QCAT for an order to end the agreement for excessive hardship.

The tenant was able to return the keys on 1 May 2021 with new tenants moving into the property three weeks later. Due to the open communication before and during the vacate process, the parties negotiated for the tenant to pay three weeks’ loss of rent from their bond refund, with no extra compensation sought for reletting fee or advertising cost due to the overall length of tenancy and it being close to the end of the fixed term anyway.

Reminder: QCAT relies on an evidence-based process so the tenant would have had to provide substantial proof of excessive hardship. In any case, the adjudicator may or may not order compensation to be paid even if the agreement is terminated.

Scenario 2

The tenant moves out after three months during a 12-month fixed term agreement without providing notice. A new tenant is found after 10 weeks as the lessor carried out some renovations before reletting the property and increased the rent to above the market rate.

The property manager serves an Abandonment termination notice on the property, claims the bond and seeks compensation for the reletting costs and the 10 weeks’ loss of rent.

In this instance, the agent/lessor applied to QCAT and was awarded the bond as compensation for four weeks of lost rent. They were also awarded additional re-letting fees (above the bond) and permission to list the tenant on a database if the fees were not paid by the due date.

The lessor was not compensated for the remaining six weeks of lost rent as the adjudicator determined the property was vacant for this extra time due to renovations being carried out and the lessor’s decision to increase rent above the market rate, and not because of the tenant’s actions.  This is also an example of not mitigating the tenant’s loss.

Frequently asked questions

Q: Can the tenant and the agent/lessor mutually agree to end the agreement early?

A:  Absolutely – if parties mutually agree to end the agreement early, there is no claim for any lease break compensation. The new, agreed tenancy end date must be documented in writing and signed by all parties.

Q: What supports exist for COVID-19 impacted tenants who need to end their agreement early?

A: The COVID-19 Emergency Response Regulations have provisions for tenants impacted by COVID-19 and have been extended until 30 September 2021. If the tenant or their household meets the eligibility criteria of having lost 75 per cent of their income and have less than $5000 in savings, the tenant can give notice to end their agreement early with the compensation amount payable capped at one week’s rent. Tenants may be asked to provide information to support their eligibility, and they must continue to pay rent as it is due throughout the two-week notice period.

Q: Can a property manager wait for the letting fee to be paid by the tenant before advertising the property?

A:  The agent/lessor has a duty to mitigate loss. Failure to promote the rental property as soon as practicable once the tenant has provided notice could be seen as reducing the opportunity to find a replacement tenant. Remember the exiting tenant is paying (or reimbursing) the lessor’s reasonable expenses.

Q: When and how should the tenant pay the compensation amount?

A: Tenants and property managers/owners should discuss how and when the compensation amount is to be paid. Some tenants may choose to pay the compensation for loss of rent on a regular basis until the property is re-let, or they may choose to pay a lump sum at the end. Another option is to deduct these costs from the rental bond once the tenancy has ended.

Q: Can the rent be increased after a tenant has broken the lease?

A:  We understand market conditions may change between tenancy agreements. You can advertise the property at a higher rent, however, you need to ensure you are mitigating the exiting tenant’s loss and demonstrate that the rent increase has not caused delay in getting a new tenant.

Q: What happens if I rent the property at a lower price than the agreement?

A:  You may be able to claim the difference in rental price as compensation. For example, if the previous rent is $450 per week, and market conditions changed resulting in you securing a new tenant at $430 per week, you could claim the $20 per week difference until the end of the exiting tenant’s agreement.

Q: What if the tenant has paid six months in advance and left after three months?

A: Under the legislation, the tenant is liable to pay rent until the vacate date. After that date, the property manager/owner can claim compensation. Agents/lessors should refund the rent paid in advance to the tenant and discuss a separate payment of reasonable re-letting expenses and compensation for loss of rent.

For more information and scenarios on breaking a lease (ending an agreement early), tune into the RTA’s Talking Tenancies podcast, with new episodes released every fortnight. You can also subscribe to the monthly RTA News to stay up to date with the latest announcements and useful information and events about renting in Queensland.

Additionally, REIQ members can seek advice from our Property Manager Support Service. Not a member? Join now.

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