How Much Does It Cost a Tenant or a Landlord to Terminate a Lease?
The cost to terminate a lease can vary depending on several factors, including the type of property, the terms outlined in the original lease agreement, the local rental market, the location of the property, the tenant and landlord laws for that city, the reason for the termination, and who is the one breaking the lease (the landlord or the tenant). I have personally witnessed how terminating a lease early can end up in court or in a very unpleasant situation for all parties involved.
Some counties like San Francisco, are very strict when it comes to tenant protections. The San Francisco Rent Ordinance provides rent control and eviction protections for most tenants. This means that a landlord can't force the tenant to move out before the lease ends, unless the tenant fails to pay the rent or violates another significant term, but this can also be a complete nightmare with a lot of legal fees. If a landlord attempts to terminate a lease in San Franciso, the tenant has eviction protections that kick in. That means a landlord must have "just cause" to evict. The "just causes" are situations where a tenant does not pay rent, breaches the lease, or is a nuisance.
Normally though, in cities that don’t have strict tenant protection ordinances, an apartment or house lease termination requested by the tenant can range from one to three months' rent. In some instances, a landlord might even charge a flat fee. In other situations, the landlord might charge the tenant a fee based on a percentage of the remaining rent owed for the lease term. The fee(s) will depend on the agreement between the tenant and landlord and most likely was specified in the initial lease they both signed.
It is important to note that California requires leases longer than a year to be in writing. Per California law, a lease with a term of one year or less may be created by verbal agreement. However, the state recommends that “for the sake of clarity and to reduce the risk of disagreement (both during the lease term and after tenant’s surrender of the premises), all leases, even those with month-to-month terms, should be reduced to written form.”
Some landlords might have a more flexible policy, such as charging one month's rent if there's a significant portion of the lease remaining. The landlord might be interested in knowing why the early lease termination is being requested because the tenant might be leaving due to legitimate and unavoidable situations like a job relocation, military deployment, or health issues. If that’s the case, the landlord might be more understanding or willing to negotiate a release termination.
In San Francisco, constructive eviction laws allow the tenant to move out if the property becomes uninhabitable or the landlord repeatedly violates the tenant's privacy or occupancy rights. On the other hand, if the termination is due to reasons that reflect poorly on the tenant, such as a breach of lease terms, financial instability, or illegal acts on the premises, the landlord might take a firmer stance, and the tenant will be financially responsible for the early termination.
In California, the law allows landlords to include an "Early Lease Termination Clause" in the lease which allows both parties to end the agreement before it ends. Normally, the landlord allows their tenant to break the lease early, but the tenant will most like be responsible for the penalty fees. As a reminder though, this can get very complicated in cities that have tenant protections laws like San Francisco.
In my experience, the initial deposit made by the tenant is used as payment for the fees associated with an early termination of lease. In most instances, the security deposit covers the cost of the vacancy to the landlord. The situation can get tricky if the deposit doesn’t cover the fees associated with the termination and/or if the landlord and tenant do not agree on the fees being charged for the early termination.
I would always recommend for the tenant and landlord to come to an agreement that seems fair and appropriate for both sides. Negotiating the fees with a landlord to break a lease seems fair and appropriate. This negotiation may include the tenant paying a fee or finding a replacement tenant. If both the tenant and landlord feel that the outcome of the situation turned out well for both sides, it will be less likely that they end up in court. It's very important to have any agreements made in writing to avoid potential disputes in the future.
Subleasing a property can get very challenging and ultimately become an ongoing nightmare for everyone involved, especially in cities that have tenant protection laws. I don’t recommend it. This can be specially challenging if the original lease includes language that doesn’t allow subleasing. In other instances, though, many leases have very strict rules about subletting and often require the authorization of the landlord approval. It is extremely important to understand and read the lease agreement to avoid disputes, legal consequences, and penalties.
Lastly, “buy outs” or "cash for keys" are fairly common practices used in situations where a landlord wants the tenant(s) to move and the tenants either refuse to move or are covered by the tenant protection laws. This type of agreement is used when a landlord pays the tenant money or other considerations to move out of the rental unit. For example, in San Francisco this type of agreement falls under Section 37.9E - Tenant Buyout Agreements. The negotiations and agreements require landlords to provide tenants with a statement of their rights and allow the tenant(s) to rescind a buyout agreement for up to 45 days after signing the agreement. Yes, the tenant can potentially have 45 days to change their mind.
The reason for these agreements is because some tenants enter into buyout agreements without a full understanding of their rights and without consulting a tenants’ rights counselor. Some tenants, especially the disabled, senior, and ill tenants can be particularly vulnerable, and can face greater challenges in securing new housing. These types of agreements can be very helpful for the tenant and the landlord but can also become the cause for a legal battle in court.
I personally sold a property in Los Angeles in 2022 that falls into the “Cash for Keys” category. Los Angeles is also a city that has tenant protection laws. During this sale the tenants were legally eligible to receive “cash for keys” if they agreed to move out. “My tenants own my house,” is what my client said when we could not sell his home because his tenants refused to agree to a buyout agreement. Some landlords can feel like they are hostages. In this transaction, I was able to negotiate and have the buyer pay for the fees associated in this agreement. We sold this property after many months of negotiations with the tenants and their attorney.
The Tenant Buyout Notification Program in Los Angeles is also known as the "Cash for Keys” program that regulates agreements between landlords and tenants. The program went into effect in 2017, and landlords can face very strict penalties if it is not followed.
It is important to note that not all cities have rent control, rent ordinances, or buy out programs. I highly recommend that anyone looking to rent, become familiarized with the city’s tenant and landlord laws. I also highly recommend that anyone seeking to rent out their own property become familiar with the city’s tenant and landlord laws. Terminating a lease could become a nightmare if the parties involved don’t agree and don’t know their rights.