Moving from renting to buying is a good choice as it means that all the money you were spending towards rent is now going towards repaying your loan and building equity in your own home. But getting out of a lease agreement early can be a tricky situation.
Are you looking to break your lease early and buy a home? Or, wondering if it’s possible to get out of your lease agreement when you have 4 months of a 12-month contract left? Then this is the post for you.
In this post, we will go through the steps of ending your lease early and give you 4 ways to break your lease without any penalties.
Table of Contents
What does breaking the lease mean?
A lease is a legally binding agreement, and if a tenant breaks the lease before the end of the lease term (referred to as the fixed term agreement) without sufficient reason, they are breaking the lease. This is also referred to as breaking the rental agreement. The bad news is that if you break a lease agreement, you may need to pay compensation to the owner or property manager until the end of the original rental agreement or until the property is leased out again. This is because there could be some loss of rent. The good news is there are a few ways around this.
Usually, a homebuyer finds the perfect home to buy and is ready to go. But unfortunately, they realise they still have 2, 3 or 6 months left on their lease term.
Under the lease agreement, if you leave the rental property with 2 months left on your lease, you technically owe the owner or property manager for those 2 months of rental even if you aren’t living there.
It is possible to have a rental agreement terminated immediately if:
- The landlord breaches the terms of the rental agreement, such as failing to carry out necessary repairs.
- The tenant breaches the terms of the rental agreement, such as illegally subletting
- The landlord and tenant agree in writing to end the agreement.
- The sole tenant of the premises dies.
- The property owner’s mortgage company gives notice.
Realistically, first-home buyers only have option 1 available if they want to break the lease without paying some form of compensation. But we will cover more of the costs below.
People break leases all the time, so if you need to break your lease, don’t worry, it’s completely doable.
What are the steps for breaking my lease?
- Notify the property manager, in writing, of your intention to leave.
In nearly all cases, if a landlord wants to kick you out and terminate the rental tenancy, they must let you know in writing. It’s the same case if you want to break your lease. Put in a Form 13 Notice of Intention to leave ASAP and send it to your property manager. The sooner you do this, the better.
- Leave the property on or before the proposed date.
Once you give notice, you cannot stay beyond the date you put on your form. You have to be super organised because there are a lot of things to do before you leave. Here are some of the things you need to do before leaving the place you are renting:
- Arrange a bond claim.
- Get a professional cleaner. If you pay for professional services to do the cleaning and have a receipt, the landlord or property managers cannot claim anything extra from you for cleaning.
- Get pest control, if applicable.
- If the garden is overgrown, you need to sort it out.
Basically, you are getting the property into the shape you found it in. Leaving on or before the proposed date and making sure the property is in ship-shape condition before you do, means that the landlord or property manager can get someone in there as soon as possible, and that will save you money.
- Take lots of photos of the property.
- Fill and complete the exit condition report.
This is called the form Form 14a. You can fill this out with your Property Manager or just complete it on your own. Once done, send this form to your Property Manager.
- Fill and complete the Refund of Rental Bond (Form 4)
Once you have completed the exit condition report, fill in the Refund of Rental Bond form and send it to the Property Manager to sign to be lodged.
Download our break lease checklist here.
When is my tenancy agreement terminated?
Legally speaking, the lease is not broken until you have given back vacant possession of the rental property – in other words, when you’ve completely moved out.
If you believe you have been placed under excessive hardship by the property manager or owner, you can also apply for excessive hardship through the Queensland Civil and Administrative Tribunal (QCAT), provided you have evidence to support your application. QCAT can then issue a termination order which may exempt you from paying the landlord or property agent any rent or compensation, or any fee from the day the termination order is issued.
What costs do I need to pay when breaking my lease?
According to the Residential Tenancies Association (RTA), when breaking a lease, you may be required to pay some of the following costs:
- Reasonable re-letting costs—usually 1 week’s rent plus GST.
- Reasonable advertising costs, if incurred.
- Compensation for loss of rent until a new tenant is found or until the end date of the lease agreement, whichever happens first.
The property manager or owner is legally required to minimise the costs of breaking the lease. If at any time you feel they are not mitigating this loss, contact the RTA for help.
What could these costs potentially look like?
Let’s say you’ve found the perfect home but have 2 months left on your lease, and your rental is $500 per week.
Worst case scenario, you may be required to cover the following:
- Reasonable re-letting costs = $500 (1 week’s rent).
- Reasonable advertising costs = $100.
- Compensation for loss of rent if It took 4 weeks to find a new tenant = $2,000 (4 x $500 ).
So it could cost you an extra $2,600 in rent to break your lease early to buy a home.
Remember, if the property manager and tenant mutually agree, the tenancy agreement can be terminated anytime. So, these figures are the worst case, but it’s worth having a chat with your property manager to see what you can work out.
What are some ways you can break the lease without costs?
Here are some tips on how you can break the lease with no costs
1. Check for a break of contract.
As part of your lease, the property owner agrees to maintain the property and provide a safe environment. Unfortunately, not every property owner lives up to their side of the deal. If they ignore requests to fix broken appliances, sort dodgy plumbing or if there are mould or insect problems, you could say they have breached their lease contract. This is one of the few cases where having a dodgy landlord is a good thing, as it will allow you to break the lease without costs.
However, this area is a bit tricky, and it depends on the situation. If you are renting a normal property with a reasonable landlord, it’s not an easy way to get out of your lease. But if you’re living in some den or something terrible, then this could work for you.
2. Find a replacement tenant.
Although you may not be allowed to sublet the property, you can find another tenant to replace you and take over the lease. If you know any mates looking for a place to stay, then you might have an easy fix! When you buy a home, it usually takes at least 45 days from the day of signing the contract of sale to you being able to move in. So you have at least 6 weeks to find another replacement tenant.
3. Talk to your landlord or property manager.
If you can agree to terminate the tenancy with the property manager on a mutual basis, then you can break your lease without any cost at all. It’s always worth discussing this with the property manager. You never know; they might be planning on moving into the property, giving it to a family member, or even looking at selling. It doesn’t hurt to ask – the worst they can do is say no.
Sometimes you might not be able to bring down the cost to nothing, but you can minimise the costs in the following ways:
- Letting the property manager know your intention to leave the property as soon as possible. This will give them lots of time to find a new tenant. If you have any friends looking to rent, you could help the property manager find a replacement tenant to minimise any costs associated with breaking your lease. The less time the property manager spends looking for a new tenant, the less you have to pay in compensation for lost rent.
- Reducing advertising costs. You should only be expected to contribute a reasonable amount for advertising costs, depending on how much time you have on your lease. This means if you have 50% of your lease left, say you are 6 months into a 12-month lease, you should only pay 50% of the advertising fee. If you have 3 months left on a 12-month lease, you should only pay 25%.
Download our break lease checklist here.
Bonus: What happens if you buy a property with tenants?
Sometimes you may be buying a property with tenants. In such a case, this is what you should do:
- Find out if the property is tenanted. This information is usually found in the contract of sale. So before entering into it, you should know if the property is currently tenanted. You can also ask the real estate agent to let you know if the property is tenanted and when the lease ends. Now the tricky part is that you can’t break this lease. You are contractually bound to keep that lease in place unless the tenants want to leave. We had a situation where the tenants were actually offered $10,000 to leave early, but they said no thank you because they were paying under-market rent, so they didn’t want to leave.
- Do extra searches. Here we suggest speaking with the managing agent because they’re the ones that deal with the tenants, i.e. If the oven breaks, they sort things out. So, If you want to learn more about the tenant’s history – whether they have had defaults or any other issues, you talk to the property manager. You could even ask for a copy of the rental ledger to ensure the tenant’s been paying on time, as it will show the last 6 or 12 months’ worth of payments. This is important because once you own the property, you’ll also have headaches if there have been any issues with the tenants living there.
- Get landlord’s insurance. It could also be worth thinking about getting landlord’s insurance for the few months that the tenant’s going to live in there, and you’re going to be a landlord. This is just in case something breaks, they leave a hole in the wall, or they stop paying rent. Landlord’s insurance ensures you will not come up short if there is any damage that might happen to the property.
- Leave a licensed property manager in place. Some people choose to try and self-manage the property once they buy it. However, it is too much trouble for a short 2-3 month period. The property manager will sort out any issues the tenants might have, e.g., if things are broken, if the tenants go into default, or if there are issues with the tenancy. You really don’t want to have to end up going to the RTA and mucking around with that. So we definitely suggest leaving the property manager in place, especially for a short period.
Bonus: Should you avoid rent to buy?
Rent to buy is essentially a lease agreement that allows a tenant to purchase a property at the end of the lease at a previously agreed purchase price. It eliminates the need to save a deposit, allowing you to use rental payments towards the deposit. However, it has the following shortfalls:
- Firstly they charge exorbitant amounts in rent. Essentially, rents are double the market rate.
- The next thing is that the purchase price is completely overvalued. So when you go into a rent-to-buy scheme, instead of paying the market value, they’ll actually increase it and, in some cases, by more than $100,000. So from the moment you get into this scheme, you’re in negative equity territory, relying solely on the fact that property prices will increase significantly.
- The worst part of all is that the property’s not even transferred into your name. You have no legal right over the property, which means that if the company running the rent-to-buy scheme goes broke, you’re left with absolutely nothing.
- Finally, the scheme is simply putting you on training wheels because all the things that they’re doing are things that you could be doing yourself. Instead of paying double the rent, you could just be putting that money aside to save for a deposit yourself. Instead of buying an overvalued property, you could get a proper mortgage to buy a house, allowing you to build equity faster.
However, if rent to buy is a scheme you’re really looking into, we’d say go in with your eyes open, question everything and get everything in black and white so you can see exactly what you’re paying – all the fees and charges. Don’t leave anything unturned.
Next steps from here to buy your first home
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Unlike other mortgage brokers who are just one-person operations, we have an entire team of experts to help make your home loan journey as simple as possible.
If you want to get started, please give us a call on 1300 088 065 or book a free assessment online to see how we can help.
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