Cancelling a Lease Agreement EARLY
If you want to end your contract early, this can only be done “in situations where the Consumer Protection Act or Rental Housing Act apply” – or if there’s a clause in the contract that allows for early cancellation, or if both parties agree to it.
If, on the other hand, one of the parties wants to cancel because the other is in breach of the contract, then certain notice periods come into effect – the first of which being, of course, that the aggrieved party is required to “give written notice for the breach to be remedied. Failure to remedy the breach in the stipulated time period, will entitle the innocent party to cancel the lease and (where relevant) claim damages suffered from the offending party.”
A tenant has the RIGHT to cancel a lease agreement, be it in the 1st month, 4th month or second-to-last month of the lease agreement. He cannot be ‘punished’ for doing this and the cancellation does not constitute a breach of the lease agreement.
What must an agent do if a tenant decides to cancel?
- Obtain the cancellation in writing from the tenant.
- Should the tenant remains in the premises a new lease MUST be signed as once cancelled, a lease cannot be revived at law. If you fail to do this, you essentially have no long-term lease in place.
- Begin advertising the property immediately – the onus is on the agent to find a replacement.
- Keep all invoices from the advertising as this is one of the costs you may pass along to the tenant in terms of a ‘reasonable cancellation penalty’.
What can an agent charge the tenant that cancels early?
The idea behind this reasonable cancellation penalty is not to penalise the tenant, but to recover any actual loss suffered by the landlord as a result of the cancellation.
The following cost could be applicable:
- Credit check costs for any prospective replacement tenants (even those who are not accepted);
- Advertising costs (only the actual amounts on the invoices);
- Rental – the exact number of days that the unit remains vacant after the tenant vacates.
It is important to keep in mind that all calculations of the penalty can only be made once a replacement tenant has been found. It must also be kept in mind that where a tenant cancels, for example, in month 10 or 11 of a 12-month lease, you cannot charge the tenant the full remainder of the lease as this would negate the cancellation. The principles behind cancellation penalties lie in our law of undue enrichment. A landlord/agent cannot make a financial gain or benefit off of a tenant’s cancellation.