Thursday, July 28, 2016

Lease. Break. Two daunting words for investors.

In South Australia, we are seeing a growing trend across the industry where tenants are looking to break their fixed term lease. A correlation is emerging between the current sales market and buyers turning into tenants. 

Let me explain. At present, the number of properties for sale across the industry are very low, and many buyers are finding it challenging to secure a home within their desired timeframe. This is resulting in a spillover effect into property management. Many buyers are turning to the rental market as a 'stop gap' between homes. Then when they purchase their dream home many are looking to terminate their lease early. 

Unfortunately this isn't what investors want to hear. Being informed that your tenant is breaking their lease can come as a shock to most landlords. However it is happening. At Toop&Toop we are educating our clients to ensure they know exactly what their rights are, and how to navigate through the situation to make sure they achieve the best possible outcome.

So what happens if my tenant breaks their lease?

As a landlord, you can claim for the loss of rent until the premise is relet, pro-rata advertising costs, and other compensation which may arise under the agreement, such as a proportion of reletting fees. The calculation is formula based and is set down by the South Australian Civil and Administration Tribunal (SACAT) and can be found on their website.

However... investors, make sure you don't get caught out. SACAT does not look favourably upon 'unrealistic' rental expectations or a lazy agent. Feedback from the tribunal is that investors should be doing what they can to mitigate the loss incurred by a tenant, which means advertising the property in line with the market rents at that time. Agents are required to conduct regular open inspections and should be proactively looking to secure a new tenant.

Why can a lease break be daunting? 

Lease breaks can be stressful for both landlords and tenants. Landlords have suddenly lost the certainty a fixed lease once provided, and tenants are faced with the potential of paying two lots of rent (or rental and mortgage payments) as well as additional costs to let the property. 

Given the current environment, what do we suggest?

Our tip for tenants: Think 'where will I be in 12 months from now?' before signing your lease. This will help you determine if the property is right for you and your upcoming circumstances.

Our tip for landlords: Lease breaks or unexpected events can happen from time to time. We suggest having a 'sinking fund' for when these events occur so you don't get caught completely off guard.

Remember, your agent is here to help guide you through these situations if they arise. They will ensure you understand your rights and responsibilities under the tenancy agreement.

Suzannah Toop

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