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Employer Willing to Buy Out Tenants Lease

by Robert Griswold, Inman News

Hobo sackQ: I have a tenant who recently signed a two-year lease for my rental home. She just contacted me indicating that she has been approached by her employer about transferring to another city for a promotion with the company. She wanted me to voluntarily let her out of the lease, but I declined, as the rental market here is not that strong and it took me three months to rent the house.

I don’t want to be difficult, but I hate to lose a good tenant when I spent so much money upgrading the rental unit and marketing the property. She has now come back to me with the proposal that the employer will pay me a “reasonable” amount to break the lease. I don’t have any idea on what is an appropriate charge. Am I limited to a certain amount? What if I ask for three months’ rent and end up renting the house in two months?

A: Your tenant is approaching you about breaking the lease so you have the option of simply declining and holding her to the lease. Of course, in most states if the tenant does vacate your rental home you are obligated to re-rent the property and can’t just let it sit empty and expect the tenant to pay the rent for the balance of remaining months on the two-year lease. On the other hand, you could agree to unilaterally release your tenant from any further obligation under the lease for nothing.

I would recommend a middle-ground response that is calculated based on a conservative estimate of the most likely costs you will incur in re-leasing the property. That includes the cost of cleaning and preparing the home to be rented, the advertising, and the length of time you will not collect rent. Based on the soft rental market you may want to propose a lease cancellation fee that includes your out-of-pocket expenses plus four or five months of rent. The factor you want to keep in mind is how long it will take you to re-lease the unit and whether it would be at least at the rent level you were to receive under the lease if the tenant weren’t leaving. If it is likely that you will not be able to get the same rental rate as the current tenant is paying or if you will have to offer some concessions (like free rent), then you should include that as well.

So while you could play hard ball and demand the full remaining balance of all the lease payments to the end of the lease, the reality is that you and your tenant’s employer will probably reach a compromise. Once the amount has been mutually agreed, be sure to prepare a basic written agreement that indicates it is a full and final settlement and that you will not seek any further payments — but that you will not pay back any funds even if you are able to re-lease the property in less than the agreed time.

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

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Copyright 2008 Inman News

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