Breaking a lease - Real estate industry bulletin 264
11 May 2023
Breaking a lease
Although a tenancy agreement is a binding contract, a tenant’s circumstances can change during the term of a fixed-term tenancy agreement and this can cause them to need to break the lease.
A tenant breaking their lease can be experiencing a lot of stress, which can include a need to relocate at short notice for work or a change in financial circumstances.
Property managers play an important part in making sure the lessor and tenant each meet their responsibilities in this situation.
This bulletin explains each party’s key responsibilities when breaking a lease.
The tenant should advise you of their intent to break lease as soon as they can and give an approximate, if not exact, date of when they want to vacate.
If the lessor agrees to break the lease, the tenant can be held responsible for costs the lessor reasonably incurs as a result of breaking the lease. The cost of advertising the premises for lease is a common example of a reasonable cost.
As a property manager, you should explain the likely costs to the tenant when they first contact you about breaking the lease. Providing an approximate figure and breakdown will help the tenant with their planning. Advise the tenant if they need to keep paying rent until a replacement tenant is found.
As long as a tenant is paying rent, they’re allowed to live in the property as per the tenancy agreement.
As with any tenancy, the tenant is responsible for leaving the property in a clean and undamaged state at the end of the agreement, less normal wear and tear.
The extent of the lessor’s responsibilities and costs to you or your agency depend on the terms of your management agreement.
The lessor is responsible for mitigating any costs they might incur as a result of the tenant breaking lease. These costs include advertising the property quickly to find a replacement tenant and minimise lost rent.
In a tight rental market, the lessor is unlikely to experience much of a loss of income if a tenant breaks the lease and may make a financial gain if they decide to advertise the property at a higher rent.
The lessor remains liable for the cost of any end-of-tenancy jobs, such as the final inspection. These costs can’t be passed on to the tenant.
You or the lessor still need to allow the tenant a fair chance to attend the final inspection to help avoid drawn-out bond disputes.
Following the final inspection, the bond money must be returned to the tenant as usual, less the cost of any repairs or maintenance they are responsible for.
Lessor breaking lease
Lessors wanting to break lease is less common, but can happen when there’s a significant change in circumstances causing undue hardship if the tenancy continues.
The tenant might agree to end the tenancy early if the lessor can offer to pay costs, such as relocation costs and connection charges at a new rental property. You may also be able to assist the lessor by finding the tenant an alternative property.
The tenant cannot be forced to leave but, if a tenant refuses to end the tenancy early, the lessor can apply to the Magistrates Court for an order to end the tenancy if they satisfy the right conditions.
The court may order the end of the tenancy if its continuation would cause undue hardship to the lessor. The lessor would likely be ordered to compensate the tenants for costs incurred due to the early termination, such as relocation costs.
More information on going to the Magistrates Court for residential tenancy matters is available in our guide, Renting out your property – a lessor’s guide.