When Should You Let the Tenant Out of a Lease?
Copyright 2008.  Landlord.com

This is a bigger question than it may seem, and is the subject of an article we have in preparation. Considerations will differ depending on the law of your particular state, whether the lease is commercial or residential, whether the move will result in a vacancy, and whether or not the tenant is willing to give you some valuable concession in exchange for his release. Nowadays, also, you may need to consider the impact of the Soldiers' and Sailors' Civil Relief Act if its remedies are available to your tenant.

Unless you receive a serious concession, such as a buyout of some type, and are confident you can rerent the property within a reasonable time, it is almost never a good idea simply to release a commercial tenant from his obligation. Because the transaction is between businessmen, a judge will most likely be sympathetic to you if the tenant skips out on the lease. This means that if the tenant moves, he will continue to be liable for rent at least until such time as you, in fact, rerent the property or could have done so with the exercise of due diligence. And if you are forced, after due diligence, to rent at a lower rent, he is liable for the difference for the entire term of his lease. But this is an obligation that most likely can only be enforced through litigation. You may wish to accept a buyout, even with these risks, to avoid litigation. If your tenant is financially shaky, and offers a new tenant who is stronger, you still may not want to release him, but hold him as a guarantor for the remainder of his lease. Guarantee agreements are tricky, and you may wish to consult an attorney to draft one that satisfies the requirements of your jurisdiction.

Residential situations differ markedly. In the first place, the amounts at stake are almost always much, much smaller than those in commercial ones. This alone removes most of the justification for a lot of legal pyrotechnics. Residential leases are rarely for more than a term of one year, and the monthly rent installments are usually not very large, relatively speaking. For this reason, aside from the moral indignation of having a tenant walk out on his contractual obligation, there is rarely a sound financial reason for not letting a tenant leave early, depending on how early. But when there is such a reason, you should enforce it.

In the case of a fixed term lease, you are, in the absence of a law to the contrary in your jurisdiction, entitled to continue to collect rent from the time the tenant vacates until the expiration of the lease or the point at which you rerent the property, or in the exercise of due diligence, could have rerented the property, whichever comes first. You are also, as in commercial situations, entitled to the difference in rent if you are forced to rerent at a lower rate, but in a residential situation this difference is usually so small as to not justify the effort to collect. Whether or not to enforce these obligations is another question.

That decision depends on the answers to at least the following questions. How long will it take to rerent the property? If it is a hot rental market it may not be worth making an issue of it. How much time is left on the lease? The less time, the less ending up in small claims court is worth. How much is the rent? See the previous question and comment. What does local law say about terminating fixed term leases? The tenant may have the right to terminate in certain cases, such as a job transfer. How solvent is the tenant? You can't get blood out of a turnip. Is the tenant willing to pay anything? A modest buyout in the hand is worth a large hypothetical recovery in the bush. Is the tenant likely to get mad and trash your property if you try to play hardball? Residential tenants are usually not dispassionate businessmen and may well become emotional. Regardless of local law, does your tenant have a good reason to move, such as ill health, need to move to a different state to care for an infirm relative, etc.? Aside from the moral question, of which you must be the judge, such a situation will make most judges before whom you will have to appear to enforce this obligation involuntarily unsympathetic to you and inclined to make factual findings against you.

There is not space here for an in depth review of all of the nuances of early lease terminations, but note from all of the above that sometimes there are good reasons to permit early terminations and sometimes not.