Why Your Contracts Should Have a Clause for Early Termination of Lease

Your rental contract will define the scope and limitation of your liabilities as a landlord and how your tenant should comply with these terms. Besides paying the agreed-upon monthly rent and utility costs, you’ll also need to implement other clauses that pertain to proper tenant behavior and general property management concerns. 

One crucial clause you should implement is an early termination clause to protect your property and your business. It’s an excellent solution to mitigate your losses with prospective tenants who cannot fully commit to their lease’s minimum duration.

The value of covering your business’s profit margins

A landlord’s revenue will depend on the consistency of cash flow they receive from their tenants’ monthly dues. This means that unoccupied units will be a negative investment, causing you to lose money from overhead costs over time. To mitigate this risk, it’s crucial to maintain a reliable turnover period from one tenant to another. You can do this by enforcing an early termination of the lease.

The benefit of having an early termination lease

An early termination of lease clause requires your tenant to pay an upfront termination fee to forego their remaining balance. This gives you some leeway to cover your unit’s overhead costs while looking for a new renter.

Most early termination clauses require the tenants to pay at most two month’s worth of rent or until a replacement tenant is found. This task usually falls under the tenant’s initiative since they’ll lose more money the longer it takes to find a new tenant to occupy their current unit. However, a landlord may also contribute to the efforts of finding a replacement.

The difference between early termination of lease and the buy-out option

You don’t necessarily have to include early termination of lease to allow your tenant to pay for a buy-out. Some tenants are more amenable to pay a non-refundable fee to end their contract and vacate your unit. If a renter has more than two months left on their lease, a buy-out option may seem like a better option for both parties. However, a buy-out option doesn’t cover your potential losses if you can’t find a replacement tenant within two months.

The details an early termination of rent should cover

Under the early termination of lease clause, you should indicate the minimum notice for the tenant to terminate their contract as a renter. This is typically within 30 to 60 days to give both parties enough leeway to get their affairs in order. Additionally, the termination fee should cover at least two months’ worth of rent. If you’re renting a unit to multiple tenants, the notice needs to be signed by all of them to make it valid.

Although most early termination of lease terms require tenants to pay a fee, it’s not advisable to take this amount from the security deposit. Remember that a security deposit’s purpose is to supplement emergency repairs caused by the tenant’s occupancy. Using this money and transferring it as rent can compromise the consistency of your business model.

Conclusion

Parting ways with your tenant doesn’t always go smoothly, which is why avoiding potential conflict is vital to maintain your credibility as a landlord with your current and future clients. It’s best to avoid confusion with a well-worded contract covering all the necessary bases. Thankfully, you can avoid the responsibility of implementing these contract clauses personally. Instead, you can outsource work to professional property managers to lessen your workload as a residential property owner.

If you’ve been looking for the best property management company in Jacksonville, FL, your search ends with us. At Quest Real Estate, LLC, we can handle your day-to-day property management concerns so you can focus on other managerial responsibilities. Work with our property experts, and they will handle your real estate’s maintenance with ease!