Breaking a rental lease early to buy a home

[penumbra]

Hi everyone,

last July I signed a 2-year lease with the expectation that we’d buy towards the end of the 2-year term. For various reasons we’ve decided to buy 8 months into the lease, and our lease has a clause that early termination requires 60 days notice (and you pay rent for the 60 days) plus a fee equal to two additional month’s rent. Rent=$2750/month. In the contract, there’s no risk that we would have to pay all the remaining rent if he doesn’t find a tenant. The rental market is hot and this is a desirable location in the city, so I think he’d quickly find a new tenant fwiw.

We probably won’t start putting bids down on houses until May. I see two options,

1. let the landlord know now so he has more time to prepare (but not officially starting my 60 days notice). He’s a good guy, and I figure best case scenario maybe he can let us sign a new lease that ends in July with a month to month option after that, and not have to pay the $5500 fee.
Or,
2. Notify him when we go under contract and start the 60 day clock at that time.

what are your thoughts on the best option? Are there risks to approach #1 that I’m missing? He’s been a great landlord and is not a big corporate entity, so I’d love to do right by him if it doesn’t expose me to unexpected risks. I asked in this sub-forum because I assume a bunch of you are landlords yourselves.

[G]

As a prior landlord, I would have never given you such a good contract.

Month to month will be more expensive for you.

I would go with the second option and just pay the relatively small fee. Basically, use the contract that you already negotiated.

In our market, I would not overestimate the ability to close--I have friends who have been overbid with cash offers for over a year. And from the landlord's perspective, there might be tenants out there, but turnover is still a PITA, especially when you thought you had a great tenant staying for two years!

[Tim]

Everything is negotiable. #1. I would not switch to month to month. But you might reach a win/win agreement.

[penumbra]

Everything is negotiable. #1. I would not switch to month to month. But you might reach a win/win agreement.

regarding #1, what else would there be to negotiate other than going to month to month? Or are you saying, go with #1 to be a good guy but don’t go month to month?

[JBME]

#2 for sure. You may have decided to buy but the housing market is hot. What if you find your house but also find you're in a bidding war? Even with a month-to-month you might psychologically want to be out of your current place sooner rather than later, which might lead you to overspend on the house because you feel pressure to get into your new place. Go slow in this process, and don't overbuy

[Tim]

regarding #1, what else would there be to negotiate other than going to month to month? Or are you saying, go with #1 to be a good guy but don’t go month to month?

Some places are seasonal, he might now wish he had raised the rent, he might value early access for showing or get estimates from contractors for renovations. The logistics might be once you have a plan, 30days is all I need. Move out a week early is worth a month’s rent penalty. Communication and cooperation make his life easier. It’s a PITA is the new tenant needs to move in the 1st and you move out on the 31st. Can be mutually beneficial.

[dayman]

Hi everyone,

last July I signed a 2-year lease with the expectation that we’d buy towards the end of the 2-year term. For various reasons we’ve decided to buy 8 months into the lease, and our lease has a clause that early termination requires 60 days notice (and you pay rent for the 60 days) plus a fee equal to two additional month’s rent. Rent=$2750/month. In the contract, there’s no risk that we would have to pay all the remaining rent if he doesn’t find a tenant. The rental market is hot and this is a desirable location in the city, so I think he’d quickly find a new tenant fwiw.

We probably won’t start putting bids down on houses until May. I see two options,

1. let the landlord know now so he has more time to prepare (but not officially starting my 60 days notice). He’s a good guy, and I figure best case scenario maybe he can let us sign a new lease that ends in July with a month to month option after that, and not have to pay the $5500 fee.
Or,
2. Notify him when we go under contract and start the 60 day clock at that time.

what are your thoughts on the best option? Are there risks to approach #1 that I’m missing? He’s been a great landlord and is not a big corporate entity, so I’d love to do right by him if it doesn’t expose me to unexpected risks. I asked in this sub-forum because I assume a bunch of you are landlords yourselves.

The risk to #1 is that he's annoyed by you leaving after less than a year, he has no interest in doing month-to-month, and that he'd really like to find a new tenant starting July 1 of this year instead of a potential off-cycle start in the fall or winter.

Be careful with #2 as well. If you activate the 60 day clause when you go under contract, and then something big comes up on inspection, you've lost your leverage to walk from the deal. I'd try to wait until after inspection.

[billy]

#2, but after you close and make sure you're moving, even if it cost you an extra months rent. The worst thing you can do to a landlord is make them start showing the apt, find tenants, then decide to stay - wasting their time. And for such an insignificant amount in the grand scheme of things (3k?) just go with what your lease says.

I may break my lease to move over the summer due to the mental aspect of staying in the apt my wife basically spent her worst last days in. Although my contract says Im responsible for the length of the lease, I'm still going to renegotiate with a here's 2 months rent, I'm not paying anything else bc you can find someone easily in this market in 2 months. If they want to stand firm they can take me to small claims court but usually the hassle isnt worth it on their end. Now if I said Im moving out tomorrow and not paying any rent, then thats a little different. Plus I hope they would be compassionate considering the circumstances. I'm not going to tell them anything until I sign the lease of the new place, because why burn a bridge if I cant find anything suitable in my time frame?

[Kamban]

As a landlord what I would like is to have an idea from my tenant that you are looking at the housing market but not 100% certain that you would get a house and move.

Even if I get a tenant the additional costs of fixing things for new tenant, ad, showings, ? finder fee if involved, credit check etc is not free. So I might compromise and take 1 month of lease break fee rather than two if I can get a good tenant for the same rent or better and during the usual time when people move ( May-July).

[penumbra]

As a landlord what I would like is to have an idea from my tenant that you are looking at the housing market but not 100% certain that you would get a house and move.

Even if I get a tenant the additional costs of fixing things for new tenant, ad, showings, ? finder fee if involved, credit check etc is not free. So I might compromise and take 1 month of lease break fee rather than two if I can get a good tenant for the same rent or better and during the usual time when people move ( May-July).

What do you think about the risks of going with #1, as cited by previous posters. I think there is validity to the risk that going month-to-month would pressure me to buy sooner than I would have had I just went with what the contract stipulates. Also, this is a very hot sellers market so I very well might not be in a house during the peak summer months when it would be easiest for him to find a renter.

[Anne]

Just go with 2. It’s part of landlording. If you do 1 and then don’t move out it’s more mental energy for him, and there’s not much he can do to prepare until he has a firm date of when you’ll be out of there. He might actually be happy as at least in my area rents have gone up since last summer and it gives an opportunity to reset the rent.

[Shant]

At most I would tell him that you're starting to look for houses. Anything more than that is purely speculation.

[Tim]

At most I would tell him that you're starting to look for houses. Anything more than that is purely speculation.

Exactly. Many landlords are not actually interested in a strict enforcement, but they certainly don’t want to get stuck. Kamban’s approach is a courtesy. It is sufficient and both you and the landlord are not in position to take action. Leave it at that.

[Kamban]

What do you think about the risks of going with #1, as cited by previous posters. I think there is validity to the risk that going month-to-month would pressure me to buy sooner than I would have had I just went with what the contract stipulates. Also, this is a very hot sellers market so I very well might not be in a house during the peak summer months when it would be easiest for him to find a renter.

As a landlord I do not like month to month. Rentals are a side hustle, not my main business and I don't want to put too much effort into it. I want stable tenants even if the month to month pays slightly more in rent. The hassles of finding new tenants every few months, empty rentals if someone leaves in November-March, sprucing up the place, the additional clean up costs are not worth my time, money and energy.

Also, month to month tenants usually don't care about the place and tend to trash it ( not you but overall those tenants are much less desirable ). Also many HOA's are trying to limit the number of houses leased as opposed to owner occupied. To prevent fights and legal issues sometimes a compromise is reached that houses can only be rented with a minimum 1 ( or rarely 6 month lease) with ho month to month or AirBnB use. I have one such property out of state that insists on it.

[penumbra]

Great insights, everyone. Seems like the consensus is to just stick to what the contract requires. Totally changed my perspective, thanks!