Breaking a Fixed Term Lease

A Residential Tenancy Agreement, also known as a lease, is given to a successful applicant of a rental property, by either the agency who is managing it or the landlord. It is a legal contract between the tenant and the landlord.

The two most common types of lease are:

Fixed Term: A fixed-term lease is for a set period of time, usually six or 12 months.  After a fixed-term lease expires, a tenant can either sign a new fixed-term lease or roll automatically onto a periodic lease. If neither party gives notice to end the fixed term agreement, the agreement also automatically becomes a periodic agreement.

Periodic: A tenant will usually roll over to a periodic lease (commonly called a ‘month by month’ lease) when their fixed-term lease ends. A periodic agreement has no end date. Normally, when a lease becomes periodic, the tenant does not sign a new lease; however, the terms and conditions of the original agreement still apply. A tenant on a periodic lease does not have to sign a new fixed-term lease, although if they do not they may risk the security of their tenancy.

If a tenant has a fixed term lease but needs to end the lease early, there are potential costs to be considered. The tenant may need to pay compensation to the landlord.

In most cases, the compensation would require the tenant to pay rent until suitable replacement tenants can be found, as well as a percentage of the landlord’s re-letting and marking costs. A tenant should aim to give as much notice as possible if they need to break their lease, this will allow for a new tenant to be found in the least possible time, minimising both parties’ financial losses.

There are only a few ways a lease can be broken without financial penalty to the tenant.

A couple of examples are:

  • VCAT determines that one of the parties is suffering from financial hardship.
  • If the tenant and landlord agree to mutually end the lease.

Ideally, to avoid any disputes over claims, and both parties having to attend VCAT (Victorian Civil and Administrative Tribunal), it would be best for the landlord and tenant to come to a mutually agreeable solution.

One Agency Robert Mure, always endeavours to find a win-win solution for all parties.

Please contact us for any of your sales or rental needs.

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Breaking a Fixed Term Lease