If COVID 19 has taught us anything, it’s that life is unpredictable and can change incredibly fast. As an Investment Home Owner, its important to be aware of the process that follows if your home renter needs to end their lease early.
The 18A General Tenancy Agreement is a legally binding agreement and the home renter does have obligations to fulfil if terminating their lease early. Our experience shows that having a clear and open line of communication for all parties creates a significantly better outcome for all involved.
In an ideal world, there should be nil out of pocket expenses for you as the home owner. The home renter is responsible for paying weekly as standard until they have vacated and returned the keys. Once this has occurred, the home renter is responsible for paying compensation which can be made up of rent until a new home renter takes possession of the property.
To ensure the smoothest transition between tenancies, we recommend being flexible in your approach and making decisions swiftly. Time is a crucial factor.
START ADVERTISING WITHOUT DELAY
To ensure we can hold the tenant responsible for compensation of rent payments until a new home renter is located, we are needing to fulfil our obligation of mitigating their loss by advertising the property for rent as soon as practical. Failure to do this may result in the home renter being able to argue we have not mitigated their loss and revoke them of their financial obligations.
WEEKLY RENT AMOUNT
It is best practise to not increase rent when advertising during an early termination as the home renter can argue their loss is not being mitigated. If a significant increase can be achieved, we may recommend negotiating with the home renter to end their lease at an agreed date, with an agreed compensation amount and allowing them early release which will financially benefit you.
If the home renter originally moved in at a stronger rental market when rental prices were much higher, it may be difficult to source a home renter at the same price. Reducing the asking price of a vacated property to match the declining rental prices in the current market, increases your chance of securing a new home renter, sooner.
When you make a rent reduction in this case the home renter will be responsible for paying out the difference of the rent on the previous lease agreement and what was achieved on the new lease up until the end of the prior agreement.
The longer a property remains vacant and online, it increases the risk of becoming stale and stigmatised for prospective tenants. With this in mind, once an application is received its important to make decisions swiftly.
WHAT MAKES UP COMPENSATION
Compensation is an agreed amount that the home renter pays to the home owner to contribute toward out of pocket expenses. This can include reletting fees, marketing costs and rent until a new home renter takes possession.
WHEN IS COMPENSATION PAID?
Ideally, compensation is paid upfront by the home renter but if your home renter is ending their lease due to financial pressure – this may not be possible. In this instance, agreed compensation will be claimed from the bond (which can only occur once home renter has vacated) and an agreed payment plan if it exceeds bond amount. If a payment plan is not an option for either party, a QCAT Application will need to be lodged along with a claim through your landlord insurance policy.
NEGOTIATING BEFORE QCAT TAKES CONTROL
Home renters will not always be responsible for 100% of out-of-pocket costs such as reletting fees or advertising costs. Example, If the home renter has already lived in the home for 10 months of a 12-month lease. For residential tenancy disputes, the Queensland Civil and Administrative Tribunal (QCAT) regularly allocates the equivalent of the remainder of the lease as the portion payable by tenants.
Be proactive in this situation and negotiate with vacating home renters prior to a dispute being escalated to QCAT, where the result will be out of your control and possibly a costly exercise with a less then desirable outcome.
If you would like more information on this process, please contact us on 13 31 32