QUESTION:

I am a real estate investor in the state of Colorado that purchases single family homes for rent. My question concerns my growing frustration over tenants that break their lease. Typically, we only make a lease for one year periods. The issue typically arises when the tenant finds a home and enters into a purchase contract, then sends a notice to me that they intend to break their lease sometimes within 3-4 months of signing the lease! My question actually has more then one part.

• What can I do to discourage this from happening? (The obvious issues are wear and tear and the expense of finding another tenant).
• What if I have negotiated terms with the tenant for a reduced rate in lieu of a multi-year lease and the same circumstances arise?
• Are there legal clauses that can be inserted into the contract lease that we can rely on for compensation? (It seems that collecting money from a tenant who is moving would be difficult to impossible).
• Are renters able to break a legal contract with impunity?
• Who would I contact in my state for guidance?

There are probably others, but you get the idea. Any advice would be greatly appreciated.

K. Bryant
Colorado Springs, CO

ANSWER:

You have issues, man! But, fortunately, you're covered by the law. A good resource for landlords (investors) is http://www.findlaw.com/, (in particular for use: http://realestate.findlaw.com/). Here you'll be able to get a handle on your rights and responsibilities as a landlord and what tenants are responsible as well.

First of all, tenants (and landlords) need to understand that the lease isn't just a fly-by-night document. It's a contract, enforceable by the courts. Yes, you can take their deposit money (but check your state's Landlord/Tenant Act for particulars.) But as a landlord, you have given up the right of possession of the unit to the renters and they have agreed to pay you for that assignment. FindLaw.com says:

"The lease does not terminate just because the tenant moves out. The lease is a contract in which the tenant promises to pay the landlord for the right to possess the premises whether the tenant actually lives there or not."

Now, what you want to do with the contract is up to you. If you consider that you're talking thousands of dollars per year in rental dollars, then it would be worth a visit to the courthouse to force some of your home-buying tenants to pay up on the way out. In the D.C. market, we take that into account when renters want to become buyers and I've seen some sellers pay off the lease as part of the sales contract.

Make sure the tenants understand what they're signing when you put the Deed of Lease under their noses. They may be willing to walk because you cave and say, "Okay...I guess you can go." Rather than: "Sure, you can get out of it, as soon as you find a sublease or pay up for the remainder of your ‘legally-binding agreement' called a lease." There's no need to get nasty. Simply point it to them when they sign it that it's legally-binding and that you expect them to fulfill it.

 For more information on real estate investing, resources and news, check out my Commonsense Real Estate Blog at http://commonsenserealestate.blogspot.com/.