Sometimes tenants have to exit a lease early. Breaking a lease early is a simple matter of contract law. Yet most landlords and tenants misunderstand their rights and obligations. Not all lease breaking should be expensive or complicated. Knowing the possible exposure and costs can help you make smart decisions before breaking the lease.
What Happens When You Decide to Leave Your Lease Early?
When you are breaking a lease early, you are technically breaking a contract. Damages in a breach of contract are calculated based on the expected benefit to each side. A landlord, for example, can expect 12 months of rent from the tenant during the life of the lease. If a tenant decides to leave five months into a year, the rent for the remaining seven months is the amount of damages the landlord is entitled to.
Landlord mitigation is a second important legal concept in breaking a lease early. Under California law, landlords have a duty to mitigate their damages when a tenant leaves early. Property owners cannot wait a year to re-lease the space and then sue the tenant for the full amount owed under the lease. They must hire a realtor and make commercial reasonable efforts to re-lease the unit.
Key Concepts in Breach of Contract – Breach of Contract – Lease
- California Civil Code 3300 – “amount which will compensate the party aggrieved for all the detriment proximately caused thereby, or which, in the ordinary course of things, would be likely to result therefrom”
- CACI 358 – Mitigation of Damages – Landlord has a duty to take reasonable steps to mitigate damages; Losses that are avoidable by mitigation are not recoverable.
What are the Potential Damages for Breaking a Lease Early?
California Civil Code 1951.2 provides all the potential damages that tenants can face for breaches of the lease agreement.
- Future Rent – unpaid future rent for every month that the landlord missed a rent payment until the end of the term of the lease agreement.
- Difference in Rent – as mentioned above the landlord is responsible to mitigate damages and find a replacement tenant. If the new rent is lower, the landlord can recover the difference between the new monthly rent and what was owed under the lease.
- Leasing Costs – any reasonable costs associated with the early lease termination can be recovered in a legal action against the tenant. That includes agent lease commissions, listing fees, marketing materials, and prepping the unit for lease.
- Attorney’s Fees and Costs – any legal costs (like filing and service) to recover damages can be recovered from the tenant. If the lease agreement has an attorney’s fees clause, you may have to pay the landlord’s attorney’s fees. While most residential leases cap attorney’s fees at $1,000 or below, some don’t – and that could turn any litigation viable, even in very small amounts.
- Security Deposit – California Civil Code 1950.5 allows landlords to use security deposits for unpaid rent charges, cleaning the unit, and making repairs beyond normal wear and tear.
Dispute Resolution and ‘Early Termination Penalties’
Many leases (residential and commercial) already have mechanisms that control what happens when a party breaches it. Think of it as a way to predetermine how parties settle potential disputes. For example, a lease might award the prevailing party to a lawsuit reasonable attorney’s fees. Other leases ask the parties to mediate disputes with a neutral party before filing a lawsuit (arbitration and mediation).
An early termination penalty/option is another word for a liquidated damages provision. It is way for the parties to agree to an amount of damages ahead of time, when the lease is signed. In general, California law does not allow for ‘penalties’ on parties for breaking a contract. Important to remember – it is not a crime to break a contract. We previously covered liquidated damages in our blog. If the amount requested is unreasonable at the time of signing the lease – liquidated damages might not be enforceable.
Key concepts in Dispute Resolution/Early Termination Penalties
- Mediation – a settlement conference attended by both parties, guided by a neutral 3rd party in order to reach a resolution without a lawsuit.
- California Civil Code 1671 – Early Termination Fee (or liquidated damages) has to be reasonable at the time of signing in order to be enforceable.
How to Avoid Penalties when Breaking a Lease?
The best way to reduce your chances of a lawsuit is to reduce the potential losses to your landlord. Finding a replacement tenant or a sublet ensures the landlords still gets the rent every month. It is important to look at your lease agreement and see under what conditions you can sublet or assign your lease.
The best way to reduce your liability is to come into a mutual agreement to terminate your lease with the landlord. A mutual release and terminating the lease can save the parties a lot of headache. Always consult with a lawyer before executing a release to make sure both parties release all past and present claims arising from the lease.
- Subletting the property or unit to a new tenant.
- Finding a new tenant to replace you.
- Negotiating a Cash for Keys Buyout.
- Month-to-month leases can be broken with a 30-day notice to your landlord.
When Can Tenants Break a Lease without Penalties?
You can terminate the lease contract early in the following cases:
- Military Duty: Servicemembers Civil Relief Act – If you are called for active military duty, the SCRA under the US Code allows for tenants to terminate their lease.
- Domestic abuse: Civil Code 1946.7 – If you or a family member is experiencing domestic abuse or a victim of crime, you are legally entitled to leave the property without penalty.
- Unit Violates Health & Safety Protocols: Civil Code 1942.4 – If you are in a unit with inadequate living conditions, you may be legally entitled to leave the property without penalty. Important to consult with a lawyer before taking action under this law.
Always consult an attorney before taking action under any of the laws mentioned above.
Breaking a Commercial Lease Early
Unlike residential, commercial leases are much longer and much less regulated under California Law. Parties to non-residential leases have more leeway to agree on terms. The liability for early lease termination can be MUCH more severe in commercial leases. Many of the rights and obligations above do not apply to commercial leases and can be waived under certain conditions.
It is highly recommended that you always consult a lawyer if you believe you cannot complete your commercial lease term.
Sinai Law Helps Tenants with Early Lease Terminations
Our firm helped hundreds of tenants in California exit their leases early with minimum liability. You can schedule a free consultation to see how we can help you. Our firm takes an aggressive approach in representing tenants and landlords for maximum client benefit. We’ve helped many tenants exit their leases early with no penalties and minimal headaches – you can check out our results here.
