What Happens If We Get You a New Home While You’re Still in a Lease?
Home buying while renting runs the risk that you'll buy something where you'll have to break your lease. What tips and strategies can you employ in minimizing any extra rent you may have to pay otherwise?
For Folks in a Month-to-Month Place, It’s Pretty Easy
If you’re renting and buying a new home, one of the things you’ll likely do during escrow is to give notice to your landlord. If you’re month-to-month, then usually notice requirements are 30 days.
We advise giving notice when we’re fairly certain that the property we’re getting you is going to close. For folks getting a mortgage, we usually suggest that notice be given after a lender has given us your final and full approval — i.e., ‘clear to close.’ This does give you a buffer of a couple of weeks to a month to complete your move and/or to do any work or improvements to your new home. And trust us, having a couple of weeks to move is a luxury that may save you time and money as most movers are busiest around the end of the month and around the 15th of most months, as leases tend to end and start those days.
If You’re Still in a Lease Term, It’s a Little More Complicated
For folks who are in the first year of a lease (or in a renewal term that isn’t month-to-month), breaking a lease early because you’ve bought a house is something that can likely cause some anxiety because you’re afraid of being on the hook for all the rent otherwise due under the lease.
Well there’s some good news as most of the buyers we’ve represented facing this scenario have reported that the process of leaving early wasn’t nearly as bad or nerve racking as they thought it would be. We decided to put together some tips and strategies for approaching this potentially awkward and worrying conversation, which may be the only thing casting a damper on the excitement of getting a new home.
In the Before Times, A Landlord May Have Only Been Too Happy to See You Go
In the days before the pandemic when rents were going higher and higher, a landlord may have been overjoyed to have a chance to rent your soon-to-be former unit out because of the opportunity to get an increased market rate rent, i.e., charge the new people more rent than they charged you.
After the pandemic and after rents took a hit (but have since largely rebounded) the picture became more complicated. If your landlord faced a cash crunch during the pandemic and offered you a sweet deal to rent the space simply to get cash flow again, then a landlord may welcome the news of you leaving to get more rent from folks looking to rent now. This may be the case as the rental market recovers. Also, having tenants vacate a unit early may allow a landlord to sell a vacant unit or building.
It’s been our buyers’ experiences that most landlords will understand and are reasonable about an early termination. Usually, our clients tell us that a landlord will quickly find new tenants, or that they all agreed on a specific amount of money (perhaps an additional month of rent) allowing the tenant-turned-owner to leave. We can say that having at least a month
The situation can get seemingly get bound up in anxiety but when you contact your landlord to say you’re ending the lease early, you’re also going to be asking for one of the following:
The ability to move out before lease’s term ends without an obligation to pay the remainder of the rent due when due;
The ability to transfer and/or sublet your unit with you doing the legwork of getting a tenant who is acceptable to the landlord;
Exercising an early move-out fee (if there is one) in your lease;
Reaching an agreement whereby you pay the landlord a lump sum of money so that the landlord will let you out of your lease (all of this should be in writing);
The likelihood of the landlord simply saying, ‘okay, good luck and good bye,’ without the need to pay anymore rent isn’t too high if there’s a lot of lease left, but you never know.
The Tips and the Tactics:
Because each living situation is unique, we can’t predict the outcome of the asks above. We can say that there are a variety of ways you can approach the conversation that we outline below, but remember part of the anxiety here is not knowing what the landlord will do or how they will respond. In any case, you can…
Be upfront with the landlord about why you’re moving. Depending on the circumstances this may be something that is welcome news (see above) especially if you give them more than 30 days’ notice so they can plan.
Be more guarded about why you’re moving. If you feel it appropriate, you can simply start by saying that you’ve had a change in circumstances and need to move before the lease ends. Gauge where to take the conversation from that point but know that absent certain valid reasons that would excuse the rest of the lease (domestic violence, military service, health and safety or landlord harassment), you’d be liable for the rest of the rent due under the lease agreement… but…
Be thankful that you may not have to pay all that future rent because a landlord is obligated to mitigate their anticipated losses by finding a replacement tenant at one point. They can’t sit idly around and expect to collect the full value of the rent due. The law requires a landlord to be proactive about finding a replacement tenant. Now, if that tenants’ rent is less than your rent you may have to make up the difference for the remainder of the lease term (see more below).
Be proactive on your side by giving notice early and/or identifying and introducing replacement tenants willing to sign a lease and live in the place you’re leaving without the landlord having to do the work of finding new tenants, or be cooperative with the landlord when it comes to making the space look its best and available to be shown to would-be tenants.
From the Landlord’s Perspective
Most landlords are risk averse, abhor vacancy loss, and worry about cash flow, which is why having an empty unit may be so very worrying to them. But having a vacant unit where a departed tenant is paying rent without the landlord doing anything about it isn’t fair either.
This is why California law says that landlords are required to find a replacement tenant (one that meets landlord criteria for creditworthiness, etc.) within a reasonable time (whatever that means) of your departure. If this happens quickly and if the replacement tenant pays the same amount of rent or more than you did, then the issue of vacancy loss is put to bed (although a landlord may charge you the expense of readying and advertising the unit).
On the other hand, if the unit sits and/or the replacement tenant pays less than you did, you may have to cover the spread between what they would have earned and what they did earn.
Both of those outcomes can get unwieldy and protracted, so a more ideal solution may be for everyone to agree to a set amount (perhaps an additional month of rent) that you can pay in exchange for terminating the lease’s obligations.
When in doubt, be sure to consult additional resources of a tenant attorney, the Rent Board or even the Tenant’s Union, check out the links below for more.
A Great Entry from Nolo: https://www.nolo.com/legal-encyclopedia/tenants-right-break-rental-lease-california.html
The Rent Board: https://sfrb.org/
The Tenants’ Union: https://sftu.org/