A lease-break offer you can't refuse

Incentives help cash-strapped landlord move tenant out early

By Inman News Feed
Add Comment Add Comment | Comments: 0 | Posted Oct. 8, 2010

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Incentives help cash-strapped landlord move tenant out early

Robert Griswold
Inman News

Q: I am a landlord who just over two years ago signed a three-year lease with my current tenant to rent out our home on the East Coast since my husband's job was relocated to the West Coast. The lease will expire early next year. We rented it at a loss, but that was fine at the time because my husband's job paid extremely well.

Since then our circumstances have changed, as the economy collapsed and he was laid off six months after we got there. With no steady work for more than a year, we have recently filed Chapter 7 bankruptcy.

We will be able to keep the house once we sign any additional paperwork with the banks reconfirming the mortgages, because a few months ago my husband was able to find a job within commuting distance to our East Coast home.

Our living situation is frustrating, as we are so close to our home but we are paying so much more in housing costs at extended-stay hotels than we are receiving in rent from our tenant due to the below-market lease.

We would rent a home, but with six months left on our tenant's lease we can't find anyone that will give us a decent rental home at a reasonable rent for such a short term. We would like to return to our home. As a landlord, what rights do I have to break the lease? Can my tenant come after us financially? What is the best possible solution to this problem, or at least the best approach?

A: While you certainly have a compelling story, you have no ability to force your tenant to vacate the premises prior to the end of the lease. The lease is a legally binding contract. You are correct that any attempt to forcibly get your tenant to vacate early could give your tenant a claim against you for monetary damages based on a premise that you are violating his right to quiet enjoyment. That doesn't mean that there isn't a mutually beneficial way to resolve your dilemma. Your best bet is to contact the tenant and see if he would be interested in voluntarily agreeing to an early termination of the lease.

While you probably have made your tenant aware that you are back in the area, have you explained your personal situation to see if he is willing to work with you? Usually, I answer questions from tenants that have a change of circumstances and I always advise them to just call their landlord and see if there is a way that the landlord can help them with their new challenge.

Life can certainly throw curveballs to landlords just as easily as tenants. So pick up the phone and see if the tenant's needs have changed and whether he would be willing to leave early. Maybe your tenant is doing well financially and is interested in taking advantage of the great deals on residential real estate and the extremely reasonable financing costs that are available to qualified buyers.

Despite the rumors, there are actually residential real estate loans being made for new-home purchases. Based on your financial condition, this would be an ideal win-win situation if your tenant were able to break the lease with no penalty and buy a home, allowing you to move back in and stop paying the high extended-stay hotel rates.

If that doesn't work, then you could offer your tenant some monetary incentive to leave before the lease expires. You can quickly calculate how much you would save by being able to move back into your home immediately versus waiting six more months -- and that is your upper limit on negotiating an incentive for your tenant to vacate early.

Of course, if your tenant fails to pay the rent or commits another serious breach of the lease, you can take legal action to terminate the lease. If none of these strategies work and you have to wait till the end of the lease, be sure to give your tenant written notice that you will be terminating the lease so that there is no attempt to extend the lease.

Also, make absolutely sure you do not accept any rent for a period of time after the expiration of the current lease or the tenant could argue that you extended his lease by at least the term covered by the rent payment -- usually an additional month.

This column on issues confronting tenants and landlords is written by property manager Robert Griswold, author of "Property Management for Dummies" and "Property Management Kit for Dummies" and co-author of "Real Estate Investing for Dummies."

E-mail your questions to Rental Q&A at rgriswold.inman@retodayradio.com. Questions should be brief and cannot be answered individually.

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