The balance of power generally lies with the landlord in Australia's overheated rental market. Long-term residential leases are virtually unheard of, and limits on rent increases are few and far between.
After signing a lease, many tenants just want to hunker down and stay on the landlord's good side so they can keep a roof over their heads.
But what if you need to bail out before the lease is up? We outline the laws and costs involved.
If you're on a rolling or periodic lease you can terminate your lease at any time by giving the required amount of notice. But it's another story if you're part way through a fixed-term lease.
When you sign a fixed-term lease, you're signing a binding contract that says you'll pay the specified rent for a minimum period. Ned Cutcher, speaking in his capacity as a senior policy officer at the NSW Tenants Union, told us that breaking a lease certainly isn't something you should do lightly.
Terminating a lease early can be a costly exercise as you may be liable to compensate the landlord for their losses.
If the amount you owe the landlord is higher than your bond, there's also a risk you could be listed on a tenancy database, sometimes referred to as a "blacklist". These databases are run by private companies and keep information on prospective tenants.
You can only be listed on one of these databases for the following reasons:
- because you've moved out and still owe an amount more than the rental bond
- because the lease has been terminated by a tribunal owing to something you have done wrong.
You may be liable to compensate the landlord for:
- rent until new tenants move in or until the end of the fixed term (whichever happens first)
- advertising costs
- reletting fees, such as an agent's fees (agent's fees can't be charged in Tasmania as it is an owner's choice to have the property managed, according to Consumer Affairs Tasmania).
Alternatively, if you're in NSW, the lease may specify a 'break lease fee' instead, in which case this would apply.
"Depending on the market conditions at the time of the lease break, the costs for rent can quickly mount up to thousands of dollars," Yaelle Caspi told us, speaking in her capacity as a senior policy officer at the Tenants Union of Victoria.
There are a number of legally specified reasons for terminating a lease, which vary slightly across each state and territory, but you generally need your local tribunal to make an order on these grounds for these to apply. Without a legal reason, breaking your lease could be treated as abandoning the tenancy.
Some common legal reasons allowing for early termination include:
If continuing the tenancy would cause you to experience undue financial hardship, most states and territories have legislation which allows you to apply to the tribunal to have the lease terminated. However, you may still be liable to pay compensation.
The premises become uninhabitable
If the property becomes unliveable, you can generally terminate the agreement early. This is generally taken to mean that the property is dangerous or poses a health hazard. For example, if there's inadequate ventilation, drainage or lighting, or there's defective construction.
Breach (or repeated breach) of an agreement by landlord
If the landlord breaches the tenancy agreement you'll generally be able to apply to have the agreement terminated. Some states require the breach to have occurred several times before they'll permit this.
A breach may be:
- a landlord not remedying a fault outlined in a repair notice
- not keeping the locks in good working order
- the landlord not respecting your right to privacy and entering the property without notice.
See the state and territory breakdown for more information.
If you do need to break a fixed-term agreement you should give the landlord plenty of notice.
Ideally you'll be able to negotiate with the landlord for a mutually agreeable arrangement (some landlords may agree to not be compensated at all, but you should get this in writing).
If you can't reach an agreement, or you think the compensation the landlord is seeking is unreasonable, you don't have to agree to it (unless you're in NSW and a fixed break lease fee has been specified in your agreement).
If you don't reach an agreement, you'll still be liable to pay compensation, but the landlord will need to apply to the local tribunal for the compensation amount to be determined.
If this happens, tenants' unions generally recommend you stop paying rent on the day you specify to move out (but keep the money aside) and wait for the outcome of the tribunal as this encourages the landlord to look for a new tenant as quickly as possible.
While a landlord is entitled to be compensated for their losses… they shouldn't make a profit from you breaking a lease
Landlords are required to mitigate their losses, which means they need to try to find a new tenant as soon as possible. Cutcher said that past tribunal decisions have found that landlords have failed to mitigate their losses when the property was advertised at a higher rate and also when it was advertised as available at a later date than when the tenant vacated.
His advice? Keep an eye on the advertising campaign for the property to ensure the landlord is doing as much as they can to get a new tenant. If the landlord isn't doing its best to find a new tenant, this should be factored into the amount of compensation being paid.
While a landlord is entitled to be compensated for their losses, as a general premise they shouldn't make a profit from you breaking a lease and they should keep the costs you'll be required to pay in compensation to a minimum.
You shouldn't, for example, be charged rent once a new tenant moves in, and advertising costs and reletting fees should be limited to the genuine costs experienced by the landlord. You might want to ask for a copy of invoices for any reletting or advertising costs to ensure costs are based on the actual fees paid.
In addition, most tenants' unions and some consumer affairs bodies make the argument that any fees should be paid on a pro-rata basis. So if, for example, you break the lease six months into a 12-month tenancy, you can argue you should only be charged 50% of the fees, as there is only 50% of the lease remaining.
To ensure compensation costs are based on the actual fees paid, ask for a copy of invoices for any reletting or advertising costs.
A landlord may try to get a fixed break lease fee if you terminate an agreement, but most states and territories don't provide for this in their legislation. NSW is the only state where you may be charged a fixed break lease fee.
In NSW, laws introduced in 2010 meant that landlords could either include a fixed break lease fee in the tenancy agreement, or the landlord could choose to use the old system of asking the tenant to pay for losses (the system in place in the other states and territories).
Cutcher said that while he sees the potential value in a break lease fee, at six weeks rent, he thinks it's too high. He's also seen landlords include a fixed break lease fee (four to six weeks rent) in areas where rental turnover is high, therefore making it easier to find new tenants quickly.
Not surprisingly, landlords continue on with the old system of compensation where rental turnover is low.
- If you think you have grounds to terminate early, you'll likely need to apply to the local tribunal for a ruling. Contact your local tenants' union for advice.
- If you don't have legal grounds, try to give the landlord plenty of notice. Be amicable and discuss whether they may be willing to end the lease by mutual agreement without penalty, and without going to the tribunal.
- You may also want to transfer your lease to someone else to reduce your potential liability. You'll need approval from the landlord for this, but they'll usually need a good reason to turn it down.
- Check the advertising campaign for the property – is it being advertised online? And for the same price? At the earliest date available? If not, keep records of this.
- If you're charged any reletting or advertising costs, you can argue these should be paid on a pro rata basis, that is, if you've got 50% of the lease left, you should pay 50% of the fees.
- Ask for itemised invoices of costs to ensure you're paying the actual costs incurred.
- Contact your local tenants union for advice on what to do.
This should be used as a guide only and not be taken as legal advice. If you need to terminate your lease early, contact your local tenant's union for advice.