Investment Property Management Advice for Owners in Chandler, Phoenix, and Scottsdale Arizona

What to Do if a Tenant's Behavior Breaks Their Lease Agreement

It is fairly shocking to read a news headline about new homeowners falling ill after moving in to a new property only to discover that their home was once a meth lab. The disclosure rules about this are not always clearly defined, and though it is an extreme, it does show that there are many harmful behaviors that people are willing to practice in their homes or properties.

While you may never have to deal with an issue this extreme, it does illustrate the simple truth that few landlords will enjoy careers without problems. In such cases you need to appropriately handle lease breaking behavior. One of the primary lease breaking behaviors is simply not paying the rent, or moving out without notice, this is a topic that we have explored elsewhere, but it will be discussed throughout this article as well.

Taking Preventative Action to Prevent Lease Breaking Issues

One way to prevent this issue is to execute excellent tenant screening while performing periodic check-ups on tenants to ensure they haven't broken the terms of their lease agreement. As a note, make sure that you follow your local laws when you perform inspections, you will often be required to notify the tenant 48 hours in advance.

If this seems like a lot of work, it is because it usually is. We may be a bit biased, but we see these duties as a major reason for hiring a property management company. It requires time to take this preventative action, and if you are busy you may not perform as well as you could at these tasks, which could result in a major issue for you.

Preparing for Lease Breaking Behaviors Before They Occur

Before a tenant ever breaks the terms of their lease, there are several steps that you can take to make your life much easier. First, you need to set clear lease terms. These will outline the exact steps that will be taken if the tenant breaks the lease by either not paying rent or by violating the terms of the lease. This is known as your "opt-out" clause. This will help to legally protect you in the case a tenant violates the lease. Your opt-out clause should include your expectation that a tenant would give you sufficient notice for leaving the property (either 30 or 60 days) and the penalty that they will incur for violating the lease.

Developing Penalties for a Broken Lease

When it comes to developing a penalty we suggest one of two options. The first is penalizing tenants for losses, including costs like days vacant and marketing fees. The second, and what we advise, is "liquidated damages," which we usually set at 3 months rent. We advise the latter of these two options because the first can get messy when trying to add up all the possible costs. Not only can listing all the costs take time, but it leaves room for mistakes if you need to take a tenant to court. No matter the option you choose, you absolutely need to make sure that you state it clearly in the lease.

Determining if Subleasing is Right for You

As you develop your lease agreement, you will need to decide if subleasing is a behavior with which you are comfortable. If you are okay with letting a tenant sublease, it can be one way of quickly handling a tenant who violates his or her lease. However, if the lease is broken due to specific lease breaking behaviors, like having illegal drugs on the property, it is doubtful you would want the current tenant selecting a new tenant for the property. Ultimately, the choice is up to you, but we advise against subleasing. No matter what you choose, make sure to explicitly state in the lease whether or not subleasing is an option.

Hold Up Your End of the Lease Agreement

Finally, make sure to keep up your end of the bargain. It is your responsibility as the property owner to ensure that you don't commit "constructive eviction." Constructive eviction occurs when the property is at such a low standard that no person could reasonably be expected to live in the property due to safety or health concerns. For example, if the property owner failed to keep the property properly heated or supplied with drinking water. In such cases, you would be unable to hold the tenant responsible for leaving the property.

Reacting to Lease Breaking Behaviors

The first step when a tenant breaks their lease is to write up a letter referencing the clause they have violated. At this point you should also discuss the consequences of their actions. For example, if a tenant has a pet in the property, but your lease prevents it, is it worth evicting the tenant? Probably not, unless they're housing an elephant it is probably just best that you fine them in order to avoid the long eviction process. However, if there are more extreme behaviors taking place it will be in your best interest to legally remove them from the property through the appropriate eviction process.

Making Sure You Can Hold Them Accountable

If you do have a tenant who is choosing to leave the property early, you will need to find out why. In certain circumstances they are fully within their rights to exit the property without repercussions. The first situation where they can break the lease is in the case of active military duty. If they are called to serve, your tenant may break the lease.

Second, if your tenant is the victim of domestic violence and they feel they are unsafe to be in the property, you must let them break the lease.

Third, if your tenant is threatened by a neighbor with a weapon, that neighbor is arrested, and then the neighbor returns to the area, then the tenant is able to leave without fulfilling the terms of the lease. This only applies in some states, not including Arizona. Check your local laws to see if this includes your location.

Finally, there are some places where the tenant may leave the property if they are over 62 and have a letter from a doctor stating that they are no longer fit to live alone. Once you eliminate these reasons, and ensure your tenant has no right to leave the property, then you need to obtain the reason for their exit in writing.

Build Evidence for Possible Legal Action

As early as you can in this process, collect written documentation of all communication between you and the tenant. Not only should you document your communication, but you should also document everything you do throughout the process. This documentation should be as detailed as possible. As a guide, think about the classic journalist questions: who, what, where, when, and why. This will be incredibly useful should you ever need to take legal action, as it will prove you did everything you could to resolve the issue appropriately.

Fulfilling your Legal Duties During a Broken Lease

Imagine a tenant breaks there 12 month lease in the 6th month. You might be tempted to try and take the last 6 months worth of rent because they have signed a contract committing to this amount. However, this would be a misguided choice. It is your legal responsibility to try and find a tenant as soon as possible to replace the tenant who is leaving.

As previously mentioned, you should document everything, and this includes your attempts to fill the property. Therefore, you should collect and keep track of all your marketing materials and any possible tenants who responded and received a tour of the property.

That said, it is NOT your responsibility to take any prospective tenant who walks through the door. You still have the ability to make your own decision about whether or not a tenant is up to your standards. In fact, most judges will give an owner one month of rent, regardless of how quickly you try to fill the property, given that it is not always easy to fill a vacant property.

What to Do After A Lease Is Officially Broken

Once a tenant leaves, or is removed from the property, you should tour the property and take note of damages to your investment. Once you have this list, you will want to deduct costs from the tenant's security deposit. During this process, develop an itemized list detailing how the money was removed from the original deposit and send it to the tenant. When you send this letter give them a set time period to pay (usually 10 days). If they don't pay within that time period you are set to go to small claims court to get your money back.

At this time you will benefit from laying the groundwork during the earlier stages of the process. You will have all the actions that you took well-documented and ready to present to a judge. This will put you in a strong position to win in court and ensure that you have as little damage done to your business as possible.

Finally - and this is important - do not try to collect money from an old tenant while collecting money from a new tenant. This is illegal and will put you in a precarious position, so just don't do it.

If you take all of the aforementioned steps you will have handled lease breaking behaviors to the best of your ability. This should enable you to move forward with minimal damage done to your property, your investment, and your peace of mind.

Share this post