How can landlords prevent early lease termination?

“My tenants want out of their lease early.”

It’s one of the biggest “fear factors” for new landlords — and yet, I’ve found, it’s a problem with a simple solution. Even though a lease is a legally binding financial commitment on the part of the tenant, leases are not always enforced entirely (or acknowledged) by landlords.

What’s more, owners don’t always understand how to hold tenants to the terms of their lease while simultaneously allowing for the possibility of a new tenant moving in and paying the rent.

Who is allowed to end a lease prematurely?

Further confusing the issue, there are tenants who do have legitimate legal outs from a lease — due to military transfer or job relocation. And then there are those whose reasons, however valid they might sound, are not sufficient grounds for early lease termination.

For example, sometimes a tenant wants to move to a different school district because of a change in family circumstances. Or perhaps they want to be closer to their place of employment.

Most landlords are reasonable people who want to cooperate with a tenant with valid reasons to move, but a valid reason for a move isn’t the same as legal grounds for being released from a lease.

Shouldn’t tenants be held responsible for the commitment they’ve made to pay you rent each month? And even if you’re willing to release them and look for a new tenant, shouldn’t they make it as easy for you to lease the property as possible?

After all, a landlord has to pay the mortgage on their property regardless of what’s going on with the tenant’s family situation, employment or children’s schooling.

The answer: A surrender of possession agreement

The solution I’ve found is a document called a “surrender of possession” agreement — “SOP” for short.  It’s one of the best ways I know of to protect a landlord’s interests when a tenant asks for an early lease termination.

It guarantees that rent will be paid and that the property can be marketed properly. At the same time, a surrender of possession agreement is fair to the tenant and allows the landlord or property manager to find a qualified replacement tenant to lease the property.

Here’s what happens once a tenant at one of our properties requests premature termination for reasons other than military transfer or job-related relocation.

We prepare a surrender of possession agreement for the tenant to sign. It allows that tenant to end the lease under very specific conditions. These conditions allow a landlord to find a new tenant without taking on additional financial risks and burdens.

If the tenant accepts those conditions and signs the SOP, the search for a new tenant can begin.

What’s involved in a surrender of possession agreement?

1. The tenant agrees to vacate the premises on a particular date and waives all rights to access the property, to facilitate the landlord’s search for a replacement tenant.

Once the agreement has been signed, my property management firm, WJD Management, immediately begins the marketing effort to re-rent the home. The goal is to make sure a new tenant can move in as soon as possible, thus allowing the current tenant to be fully released from the lease requirements.

2. The tenant acknowledges that it’s his or her responsibility to continue making rent payments until a replacement tenant has been found, or their original lease term has concluded, whichever happens first.

3. The tenant agrees to keep the utilities on and to continue to bear the responsibility for paying the utility bills until a replacement tenant takes occupancy and switches the utilities into their name.

4. The tenant agrees to perform all required maintenance of the property under the terms of the lease or to be held financially responsible for that maintenance if WJD Management has to assign a contractor.

5. The tenant agrees to reimburse a portion of the landlord’s leasing fee to find a new tenant. This amount will vary depending on how much of the original lease term the tenant has fulfilled.

What happens after the agreement is signed?

What happens if no replacement tenant is found or if a new tenant is found — but at a lower monthly rental rate?

Simple — the tenant continues to bear the financial responsibility for the house yet without any physical access to the property. And if the new tenant signs a lease at a lower monthly rent, guess who is responsible for paying the landlord the difference between the original rent amount and the new lower amount?

You guessed it. The tenant choosing to break the lease has to pay.

Could this arrangement end up putting a tremendous burden on a tenant’s shoulders? Yes, it certainly could — especially in an uncertain rental market. Do residents typically go through with vacating the premises and allowing the search for new tenants to proceed?

No. In our more than 30 years of managing residential properties in Northern Virginia, we have found tenants usually re-evaluate when they are confronted with this financial responsibility. They decide they can ride out the remainder of their lease after all.

There’s no vacated property and no risk of paying two rents simultaneously. The only exception seems to be when the tenant has purchased a home under the assumption that they can just break their lease and walk away with no further responsibilities.

Faced with being held liable for the balance of rental payments owed for the remainder of their lease, a tenant in this situation will almost always sign off on the SOP.

Few property management firms that we know of use the SOP agreement. But I believe that protecting my clients’ financial health is one of my greatest responsibilities.

Sometimes life throws a curveball at a tenant — and an early termination might ultimately be the best thing for all parties.

At the same time, an important part of a property manager’s role is to uphold and enforce a lease commitment as the legal contract that it is.

It’s my job to enforce each and every lease under my firm’s management — and thus protect my clients’ ability to meet their responsibilities each month.

An SOP is one important — and often overlooked — tool for giving landlords that protection.

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David Norod is the principal broker of WJD Management. He enjoys keeping his 400+ property owners up to date on the best ways to keep their homes rented and running smoothly. When he’s not managing properties, he’s playing classic rock in local clubs with his band Off The Record.

Email David Norod.