Lease Termination Clause (by Lisa [CA]) Mar 22, 2017 6:55 PM
Lease Termination Clause (by Jim in O C [CA]) Mar 22, 2017 7:42 PM
Lease Termination Clause (by Lisa [CA]) Mar 22, 2017 8:18 PM
Lease Termination Clause (by Moshe [CA]) Mar 22, 2017 8:48 PM
Lease Termination Clause (by BRAD 20,000 [IN]) Mar 22, 2017 10:01 PM
Lease Termination Clause (by Lisa [CA]) Mar 22, 2017 10:14 PM
Lease Termination Clause (by Lisa [CA]) Mar 22, 2017 11:17 PM
Lease Termination Clause (by Moshe [CA]) Mar 23, 2017 2:04 PM
Lease Termination Clause (by Lisa [CA]) Mar 23, 2017 2:52 PM
Lease Termination Clause (by Moshe [CA]) Mar 23, 2017 4:38 PM
Lease Termination Clause (by Lisa [CA]) Mar 23, 2017 8:54 PM
Lease Termination Clause (by Lisa [CA]) Posted on: Mar 22, 2017 6:55 PM Message:
State Specific Question About: CALIFORNIA (CA) and AZ.
Recently I have had 3 tenants terminate their leases early. It is probably unusual that it has not happened before. None were related to property condition or management issues. I quickly learned that I needed to change my lease terms to protect myself.
Any comments on adding these new terms to my lease agreements would be greatly appreciated.
Termination of Fixed Term Leases
1. If the lease is to be terminated early, 30 days’ notice must be given, and the tenant is still required to pay rent until a replacement tenant is found. Although management will make a good effort to advertise and rerent, replacement tenants must be fully qualified, and the process could be time consuming. Management is not obliged to cancel existing plans or to prioritize filling the vacancy for the tenant above other obligations.
2. Early Termination Fee (ETF): $500. Any fixed-term lease that is terminated early by a tenant will be assessed a $500 Processing Fee. This fee will also be charged to any tenants who have their lease terminated by management for non-payment of rent or for non-compliance with two written warnings to comply with the lease terms.
3. Early Termination Option (ETO):
An Early Termination Option is available upon request at the cost of one month’s rent, in addition to the Early Termination Fee and 30 days’ notice. Some tenants prefer to take the ETO which will terminate the lease agreement for a fixed amount. It is recommended that tenants breaking a lease evaluate their situation before deciding whether or not to take advantage of the ETO.
4. The Early Termination Fee and the Early Termination Option do not override the need to leave the property in good, clean condition.
--76.90.xx.xxx |
Lease Termination Clause (by Jim in O C [CA]) Posted on: Mar 22, 2017 7:42 PM Message:
You will have some problems using the ETF and ETO in California. Why not just join a California landlord association and get all the forms which should be acceptable in our California Superior and Small Claims courts. Our local association is $79 per year with no extras. --108.196.xxx.x |
Lease Termination Clause (by Lisa [CA]) Posted on: Mar 22, 2017 8:18 PM Message:
Thank you. I will do that. But what problems with ETF and ETO? I have a CA lease but there is no repercussion for breaking the lease apart from having the obligation to pay until the term is up. And that I have found can be hard to work with. --76.90.xx.xxx |
Lease Termination Clause (by Moshe [CA]) Posted on: Mar 22, 2017 8:48 PM Message:
Your situation is already covered by CA law, but within a little different logical framework, because CA has converted its view of leases into contract law instead of old-fashioned real property law.
If you have a lease, then your insistence on 30 days notice is not valid. Tenant can terminate the lease contract at any time. However, that does not change the amount of money that the tenant owes you. What tenant owes you is NOT rent until a replacement tenant is found, but RENTAL LOSS that you have suffered because tenant did not fulfill obligations of the lease. Once the tenant has left, he no longer owes rent, the lease contract has ended. The rental loss is damages, because tenant did not fulfill his obligations under the lease. The damages can include other expenses such as the cost of recovering the property, getting the property ready for re-rental and the cost of re-renting. How much rental loss you suffered is limited to loss that you could not have avoided, and that is tenant's burden to prove what you could have avoided.
You cannot "assess" a fee. You don't have any such authority.
In case of lease terminated by non-payment of rent, only the court can force that on the tenant, and costs are governed by law. The law also governs procedure for lease termination for lease violations.
While a liquidated damages (ETF) clause is now valid in CA, you cannot collect both the liquidation amount and lost rent. The ETF represents the amount for which you have agreed to wind up the lease, and that includes your lost rent for 30 days. Tenant can liquidate his obligation without giving notice, because your loss is covered by the agreed-on liquidation amount.
--47.139.xx.xxx |
Lease Termination Clause (by BRAD 20,000 [IN]) Posted on: Mar 22, 2017 10:01 PM Message:
Lisa,
Wow! Cali laws: ANOTHER reason I'm happy to be in the Fly Over Midwest!
My lease is clear (but CA does not like these specific terms): 60 days notice in full calendar months only, and Early Release Fee which is double the rent.
Just had a res give 30 days notice so he paid the next month AND the ERF. I gained 3 months of rent when he left.
Re-rent quickly!
BRAD --73.146.xxx.xxx |
Lease Termination Clause (by Lisa [CA]) Posted on: Mar 22, 2017 10:14 PM Message:
I think I understand. So I could simply include an ETF of 2 months and that would be OK? That seems very simple.
But it also seems high if in fact the vacancy can be filled promptly. But filling it promptly cannot be guaranteed, and one reason we do a lease is so that we can plan trips without getting a moving notice while we are away.
I wanted to do the $500 ETF as both a deterrent and to cover the time and hassle of rerenting before the term ended.
I did not want to charge more than that if the rental filled quickly especially due to cooperation of the outgoing tenants. But I did want to receive the days of lost rent for as long as it took to rerent.
Is there a way to have flexibility in this?
Also, if the ETF is not a fee, but a liquidation amount, is there another abbreviation for it?
Thank you again!
--76.90.xx.xxx |
Lease Termination Clause (by Lisa [CA]) Posted on: Mar 22, 2017 11:17 PM Message:
Thanks, Brad.
And thanks again, Moshe--I was writing you when Brad's message came in.
Brad, Did you collect that ERF when he moved or when he gave notice?
Moshe, Regarding the "rental loss" how does this integrate with the CA requirement to refund the security deposit within 21 days? If the place has not rented, then it is not known how much the loss will be, right?
Thank you for the excellent help.
Lisa --76.90.xx.xxx |
Lease Termination Clause (by Moshe [CA]) Posted on: Mar 23, 2017 2:04 PM Message:
Lisa:
A liquidation amount of 2 month’s rent is more than the amount that I would expect you to have lost, since you are in CA (I don’t know where). Also, 2 month’s rent may be a little high for some tenants to come up with. That’s an incentive to tenant to simply leave without paying the liquidation amount.
You cannot use the liquidated damages clause as a deterrent (penalty). If you used CA law of lease contract, you would be entitled to costs of recovering property, getting property ready for re-rental, and cost of re-renting. Also, under CA law, you may perform these actions yourself, and charge a reasonable hourly charge. The ETF subsumes these costs into the liquidation for the fixed fee.
Of course, you could promise the tenant to forgive some of the ETF under certain conditions, such as notice or early re-rental.
Yes, you must return SD within 21 days. An exception may be made if all costs are not able to be accounted for, and return of the SD must be delayed until the figures are available.
You should be aware that a judge is required to apply certain tests to the ETF to determine if it is enforceable. These tests include to test if the amount of the ETF is a realistic approximation to the actual costs to the landlord. There are no free lunches allowed. Another test is to see if the costs are actually hard or impossible to determine. A good lease would include agreement by both landlord and tenant to this principle. These tests are not a CA thing, they are basic tenets of Common Law, applicable in all US states (except for LA [not L.A.]).
Comparing contract law to real property law shows that the results are pretty much the same, in either case, just a change in their theories and language in which they are embedded. But in actuality, many less-well-educated judges in old-fashioned states make contract decisions under real property law rules, because they really don’t understand either one. Most modern states have either changed their law already, or are preparing to do so.
--47.139.xx.xxx |
Lease Termination Clause (by Lisa [CA]) Posted on: Mar 23, 2017 2:52 PM Message:
Thank you. Let's say then that the rent has been paid through March 31, and the tenant emails on March 28th to say they will be out on March 31st.
Assume an ETF of $1600--about one month's rent. In that case the tenant moves on the 31st, and the tenant pays or has deducted from security $1600.
Now the landlord cleans up and rerents. The landlord loses the flexibilty that would have been gained by receiving 30 days' notice on a month-to-month, but receives an extra payment to deal with it.
That is not much of an incentive for a tenant to give notice. And it seems that with this scenario or even with just the difficulty of collecting payment once a tenant has left, the lease is not such a great benefit to the landlord.
What are your thoughts about that?
Thank you again. --76.90.xx.xxx |
Lease Termination Clause (by Moshe [CA]) Posted on: Mar 23, 2017 4:38 PM Message:
Yes. The tenant has no incentive to give notice. He leaves when he wants to, and pays the ETF. Landlord gets his compensation as agreed.
I don't know what you mean about the lease being not a great benefit to the landlord. What does that have to do with use of the ETF?
--47.139.xx.xxx |
Lease Termination Clause (by Lisa [CA]) Posted on: Mar 23, 2017 8:54 PM Message:
Thank you, Moshe. Well, I would like to add the ETF to make the lease more beneficial to the landlord compared to month-to-month.
Right now it is not a great benefit, because the tenant can leave without notice, and the landlord has to go through the process of rerenting. If there are damages that need to come out of the security, there might be little left to cover lost rent and it might be hard to collect. (Fortunately I have no experience with collections.)
Plus the landlord is subject to the abrupt need to rerent if notice is not given. One of the reasons for a fixed term lease for us was to be able to plan around potential move dates.
Meanwhile, the landlord has to honor the lease length and cost. The cost problem arose when utility use skyrocketed, but once usage caps were established that problem disappeared. And usage went back to normal.
Moshe, I really appreciate your help and insight on this. I think I will add an EFT of about one month's rent for terminating the lease early, and a credit of $300 to tenants who provide a month or more of notice. That should be incentive to give notice if they must move, and compensation to the landlord as agreed.
And if the tenant has to move for some valid reason, then I can waive part of the EFT after it is rented if it rents quickly. Right now I have tenants moving out after only a few months because they brought in without permission a puppy to a a no-dog residence. They said they would rather break the lease than not have dogs. This when they already have 2 cats and chickens and we installed garden boxes for them. And the terms were clear. How many times have landlords heard the excuse/reason "I did not read the lease, or the ad, or whatever." Possibly we were too nice so they thought they could ignore the terms. I just don't know.
I will try the EFT and credit for notice, and hope I don't need to use it. Thank you, again. --76.90.xx.xxx |
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