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When a tenant changes his mind about renting from you before he’s moved in, what does that mean for you, the tenant and the rental property?
Perhaps the tenant got notice of a job transfer, encountered a family emergency or simply got cold feet about moving into your rental property.
We actually discussed on our podcast a real life example of a tenant wanting to break the lease before moving in. You can listen in to that to hear how that story progressed.
It’s important for the landlord to document everything, especially the early termination letter.
No matter what the circumstances, sometimes tenants change their mind about occupying a unit even before they move in.
Learn what both of you are legally obligated to do when this unusual situation occurs so you can minimize the financial impact.
You can grab a free copy of our early termination letter here.
Signed A Lease but Changed My Mind
Once the rental lease agreement has been signed, the landlord and the tenant have entered into a binding contract, whether the tenant actually occupies the unit.
If a tenant signed a lease but changed their mind about moving in, you must treat the notification as his intent to break the lease agreement.
Ask the tenant to provide a written 30-day notice for your records that he will be breaking the lease. Explain to the tenant that he is legally liable for rent for the entire lease agreement; however, you will try to re-rent it as soon as possible as part of the good-faith effort required by most states.
The tenant is responsible for paying rent until your property is rented out again, whether he is physically present at the unit or not.
This is What Security Deposits Are For
The security deposit (generally equal to two or three month’s rent) is made for situations like this—to compensate you in the event of unpaid rent.
Because most landlords require tenants to pay the security deposit at the same time the lease is signed, it can help bridge the income gap between your tenant’s first few months of rent.
If you have collected the deposit from the tenant, you and the tenant have two options:
- You keep it, apply the security deposit toward rent owed until the property is re-rented, and then send the unused portion back to the tenant. The tenant doesn’t pay rent unless the rent owed exceeds the total deposit. This route is risky because it may be difficult to collect or sue for rent from the tenant after the security deposit is used up.
- You set it aside and the tenant pays rent each month until the property is rented again. Then, you send the deposit back in full, since there won’t be any damages to the unoccupied unit. This route is safer for you because the tenant has the incentive to pay the rent in order to get the security deposit back in full. If the tenant fails, you can deduct rent from the security deposit anyhow.
3-Day Right to Rescind
When the tenant doesn’t get his deposit refunded immediately or wants to give you an earful when you stand your ground on rent responsibility, he may invoke a “right to rescind.”
This is referring to a consumer protection law that requires financial lenders to allow borrowers to back out of a loan under certain circumstances after three days.
Unfortunately for the tenant, this right does not relate in any way to lease agreements and rental properties.
If the tenant tries to convince you of this policy, go ahead and debunk the notion that there is a right to rescind or cancel a lease agreement within three days.
When your tenant wants to terminate the lease agreement before occupying the rental property, you can work with him to minimize the financial impact for both of you.
As the landlord, you are entitled to keep the security deposit, and are entitled to collect rent until the unit re-rents.
However, it is your duty to minimize the time it takes to re-rent and find a replacement tenant.
Landlord Calls In About A Tenant That Wanted To Break The Lease Early
On our podcast “RentPrep For Landlords” we dive into different issues that landlords call our company about.
In episode 164 we discuss a conversation where a landlord had a tenant that wanted to break the lease early.
FAQ around Early Termination of Leases
How long after signing a lease can you back out?
Unlike the lemon laws around cars where you have a grace period to bring a car back. Once a tenant signs a lease you’re contractually obligated to the rental for the lease period. You can try and negotiate with the landlord on leaving the lease early.
Backing out of a lease after signing?
There is no flip of the switch for backing out of a lease after signing. The best course of action is to clearly communicate to the landlord why you’re considering backing out of a lease after signing. The landlord is legally entitled to the rent you’ve signed on for but that doesn’t mean they will try and collect. Some landlords may work with you or even let you off of the lease if they have other suitors waiting.
Can you cancel a lease?
A lease can be canceled if both landlord and tenant agree to the terms. Sometimes a cash for keys agreement is used in situations where a landlord is trying to evict a tenant. This can be used in reverse where a tenant promised a cash buy out from their lease. Perhaps one month rent to give the landlord time to find a new tenant. Be sure to get this agreement in writing.
Signed lease but never moved in
A lease becomes a contract when it is signed by both the landlord and tenant. If you signed a lease but never moved in it has no bearing on the contract. The same way if a sports player signs a contract in the offseason but has yet to play for that team, the team and player are contractually bound to one another. You must communicate as early as possible to the landlord that you’re not interested in moving in and would like to break the lease. The earlier you communicate this the better your chances are of breaking the lease without penalty.