Managing the break lease process: a guide for property managers

Section 277 of the Residential Tenancies and Rooming Accommodation Act 2008 (RTRA Act) lists ways to end a residential tenancy agreement. While not explicitly mentioning "break lease," a break lease occurs when a tenant ends a fixed term agreement early without valid grounds, potentially requiring compensation.

Due to the common use of this phrase for clarity, we will use the term "lease break" throughout this article to describe this situation.

As the real estate market continues to evolve, so do the challenges faced by property managers. One such challenge is managing the break lease process effectively, ensuring a smooth transition for all parties involved. In this article, we delve into the intricacies of handling the break lease process in Queensland and offer guidance to help you navigate this situation with confidence.

Understanding the break lease process

Before we dive into the specifics, let's briefly revisit what a break lease entails. A break lease occurs when a tenant prematurely terminates their lease agreement before the fixed term ends. This could arise due to various reasons, such as a change in circumstances, job relocation, or personal preferences. As a property manager, it is essential to be well-versed in the RTRA Act to effectively manage the process.

Open communication with the tenant

Maintaining open lines of communication is key when a tenant expresses their desire to break their lease. Promptly respond to their request and arrange a meeting to discuss the situation. It's important to understand the tenant's reasons for breaking the lease and address any concerns they may have. Open dialogue can often lead to mutually beneficial solutions, such as finding a suitable replacement tenant or negotiating a compromise that satisfies both parties.

Review the tenancy agreement and legal obligations

Thoroughly review the tenancy agreement including the special terms to identify the provisions pertaining to breaking the lease.

If a tenant ends a fixed term tenancy agreement without grounds (breaks lease), the lessor may be entitled to reletting costs provided that the tenancy agreement includes a term requiring the tenant to pay the reletting costs.  The way reletting costs are calculated has changed as of 30 September 2024.

From 30 September 2024, the ‘reletting costs’ must be calculated as follows:

Formula 1:  For a fixed term agreement three years and under

The lower of:

• the amount of ‘reletting costs’ calculated under section 357A; or
• an amount equal to rent payable between the handover date and the date that the property is relet.

Formula 2: Fixed term agreement of more than three years

The lower of:

• an amount equal to one month's rent for each 12- month period remaining, up to a maximum of six months’ rent; or
• an amount equal to rent payable between the handover date and the date that the property is relet.

The RTA has an online calculator available (from 30 September 2024) to assist parties with calculating reletting costs. See the REIQ New Tenancy Laws Toolkit for detailed information about:

• how to calculate and recover reletting costs
• when reletting costs may be calculated
• how to deal with reletting costs during the bond refund process
• transitional requirements – when you may still recover ‘reasonable reletting costs’

Actively market the vacant property

Once the tenant has officially notified their intention to break the lease, it's essential to proactively market the property to minimise any financial losses for the lessor and outgoing tenant. Advertise the property through various channels. Conduct regular inspections to showcase the property to potential tenants and expedite the reletting process. By actively seeking a replacement tenant, you can mitigate the financial impact on both the lessor and the outgoing tenant and ensure you have met the requirements of the RTRA Act s362 Duty to mitigate loss or expense.

Screening new tenants

When potential replacement tenants express their interest in the property, ensure that you conduct thorough screening procedures to maintain the property's integrity. Perform background checks, contact references, and assess their suitability as tenants. Once a suitable candidate is found, facilitate the necessary paperwork to enter into a new tenancy agreement and ensure a seamless transition. Keep all parties informed about the progress to instil confidence and transparency throughout the process.

Finalising the break lease

As the break lease process nears completion, ensure all documentation is in order. Perform a comprehensive final inspection of the property. Handle the return of the tenant's bond (if applicable) in accordance with the Residential Tenancies Authority (RTA) guidelines. Promptly address any disputes or outstanding matters to finalise the break lease process successfully.

Maintaining professionalism and empathy

Throughout the break lease process, it is essential to maintain professionalism and empathy. Understand that unexpected situations can arise, and tenants may find themselves in difficult circumstances. By approaching the process with understanding and empathy, you can foster positive relationships and preserve the reputation of both the lessor and your agency.

Handling the break lease process in Queensland necessitates knowledge, organisation, and effective communication. By following these simple steps, property managers can navigate this process with confidence, minimising financial impact, and maintaining strong relationships with both tenants and lessors. Stay informed about the latest legislative changes and industry best practices to ensure that you continue to provide exceptional service in a trying real estate market.

Related: Find out about renewing leases here.