Lease Breaks: Revisited
This time...it's personal
Welcome to Saving Money with Andrew!
When I wrote a step-by-step post on lease breaks in May, little did I know that only two months later we’d break our own lease. How well did I follow my own advice, and how did it go? Let’s find out:
Review your lease. As a first step, it’s always smart to review your lease to see if it gives you any ability to terminate your lease (unlikely, but not impossible). Unfortunately, our lease said nothing about a termination, leaving us potentially on the hook for all of the remaining rent on our lease (13 months of a two-year lease). No luck here.
Gather some intel. In normal times, it can be useful to talk to neighbors (if you know them well enough) to try to learn more about the process of breaking a lease in your building or others nearby. Unfortunately, this was not possible given current circumstances. But friends we spoke to said that landlords were all over the map, with larger landlords being much harsher than owners of single units.
Assess the rental market. Look at how many apartments are available, and where prevailing rents are for comparable apartments to yours. Our building and others nearby have tons of vacancies, and many people in similar situations have left the city entirely. In most cases, landlords are now offering incentives on new leases that result in net effective rents (taking the free months into account) at least 10-20% below ours. It’s a weak market.
Consider subletting. If your lease allows (landlord consent may be required), consider whether you might be able to sublet your apartment. It is highly likely you’d take a significant loss in this environment, but it could be a way of reducing the financial hit. We tried! But there was no real interest.
Try to find a new tenant. In addition, you may be able to search for a new tenant to assume the remainder of your lease, and then connect them to your landlord. You might have more luck if you offer the apartment to a new tenant at a lower rent than you are currently paying, with you covering the difference. We consulted a broker, who offered to list our apartment for us in exchange for a one month fee if he was successful in finding a new tenant. But, he also told us that a similar apartment he was listing had only received one inquiry in a whole month on the market. Studios and 1BRs are still moving reasonably quickly, but 2BRs and up are sitting on the market forever, probably because very few families are considering moving into a city right now.
Communicate with your landlord. In general, you (and your credit) are much better off if you communicate with your landlord and try to resolve the situation, providing them plenty of notice. Many landlords, particularly large corporate ones, allow tenants to exit their lease in exchange for a fixed charge, generally of a couple months of rent. In this environment, these deals may not be possible, but it’s worth a try. Ultimately, this is what we did, with slightly better results than we feared. Our landlord agreed to let us out of the remaining 13 months of our lease in exchange for a payment of four months rent. Citing our history as good tenants, I asked for a reduction to a three month penalty, which unsurprisingly the landlord declined. But, on the positive side, the landlord did agree to waive a 30 day notice period for the lease break which could have cost us an extra month of rent.
At the end of the negotiation, we felt kind of relieved to be exiting with only a four month penalty when we could have been on the hook for over a year of rent, with an uncertain possibility of recouping much of it from the building finding a new tenant. Kind of amazing that we’d feel relieved to take such a tremendous financial hit, but these are unprecedented times.
Have you or anyone you know broken a lease lately? I’d love to hear your experiences and stories.
Finally, thanks for reading to the end! Here’s Andrew’s pick of the week:
For years, I’ve enjoyed Maria Konnikova’s articles in the New Yorker, mostly on pop psychology topics. Her new book, The Biggest Bluff: How I Learned to Pay Attention, Master Myself, and Win, is a fun trip through her journey to the World Series of Poker. But it’s not really a poker book. It’s much more a set of interesting essays discussing things like process versus outcome, victim mentality, and about what it’s like to be a woman competing in a sport that is 97% male.
I hope this has been helpful. If you liked it, please share it with a friend! Also, please send me your feedback, requests, and success stories.