The typical duration of a residential lease contract is two years. But do you really have to commit to the full two years? And what happens if you need to terminate the contract early? This article will thoroughly explain the process of terminating a lease contract midway. Whether you're considering termination or planning to lease a property in the future, this information will be helpful. Please read on.
Let's start by addressing whether you can terminate a rental property lease midway.
When you hear "2-year contract," it's easy to assume that you must stay for the entire duration. However, think of it as having the right to stay for two years rather than an obligation. While it's typical to continue renting throughout the contract period and renew or terminate the contract at the renewal date, rental contracts usually include a termination clause. Therefore, you can generally terminate the contract by giving notice within the specified period.
In other words, it's possible to terminate a rental property lease midway. There are two common types of rental contracts: ordinary lease contracts and fixed-term lease contracts. Both types typically allow for mid-term termination.
In the case of an ordinary lease contract, if you want to continue living in the property for more than two years, you can do so by "renewing" the contract for another two years. However, the tenant must pay renewal fees, administrative fees, and insurance premiums. On the other hand, with a fixed-term lease contract, renewal is generally not possible.
Since landlords earn income by renting out properties, offering a two-year contract ensures stable rental income for that period, while tenants are guaranteed the right to live in the property for the agreed-upon duration by paying the contract fee. However, if a tenant requests termination, the landlord cannot refuse it.
This is only the tenant's perspective; termination by the landlord is not recognized without just cause. Just cause may include instances where the tenant repeatedly fails to pay rent, violating the terms of the contract, etc.
Now, let's discuss what to consider when terminating a lease midway.
Rental contracts specify a notice period for termination. In most cases, it's either two months or one month. This means that you must notify your intention to terminate the contract two or one month before the desired termination date. Be sure to check the details in the contract, as it will be explicitly stated.
Some rental contracts include penalties for early termination as a special provision. Important terms such as "If the tenant terminates the contract in less than a year, the tenant shall pay a penalty equivalent to one month's rent" may be stated in the explanatory documents or notes of the contract. Since this is crucial information in the event of mid-term termination, be sure to check it.
Since the termination notice period is typically one or two months before the end of the contract period, oral communication may not leave evidence, potentially leading to disputes. When signing the contract, a termination notice form should be included. If it's missing, contact the management company to have it mailed to you or download it from their website. The method of termination notice is detailed in the contract, so be sure to confirm it.
In cases of sudden job transfers or emergencies, you may need to vacate and move out immediately. Is immediate termination possible?
Immediate termination refers to terminating the contract right away. The requirements for immediate termination include the landlord's consent, payment of penalties, including breach fees, and vacating the property, including moving out belongings. It's not possible to unilaterally terminate the contract, nor is it possible to terminate the contract while leaving belongings behind.
The costs associated with immediate termination include rent and management fees for the notice period. If the notice period is two months, you'll need to pay two months' rent and management fees, and if it's one month, you'll need to pay one month's rent and management fees. Additionally, if the property has a penalty for short-term termination and it falls within the specified period, you'll need to pay the penalty separately. By paying the rent and management fees for the notice period, if the period expires, the payment of the penalty for short-term termination may be waived. In such cases, consult with the management company.
When terminating the lease halfway through the month, what happens to the rent? Do you have to pay until the end of the month?
Rental contracts often start in the middle of the month. Rent and management fees are typically prorated, so you'll need to pay the prorated rent and management fees until the termination date. The calculation method for prorated fees varies depending on the management company or landlord, with some dividing by the number of days in the month and others using a fixed "30-day" calculation. Be sure to check the details in the contract.
Regarding the final month's rent, you may be asked to pay only the prorated amount or the full monthly rent, depending on the situation. Even if the full monthly rent is requested, rent and management fees are still prorated. Therefore, any excess payment will be refunded during the settlement at the time of vacating. Security deposit settlement refers to the return of the remaining amount from the security deposit deposited at the time of signing the contract, after deducting expenses for restoration to the original condition (such as room cleaning fees, etc.). Depending on the contract, the refund may be made within one month after termination or within 45 days. This information is also stated in the contract, so be sure to check it carefully.
The most significant concern when terminating a rental property lease midway is the penalty for early termination. So, what types of properties are more likely to incur penalties?
There is a tendency for properties with zero key money or reduced initial costs to have penalties for early termination. Landlords often want to recoup the reduced initial costs through rent. If the lease is terminated early, there is no way to make up for it. Therefore, landlords hedge this risk with penalties for early termination. Be sure to check if there are any penalties set for properties with zero key money. For properties without security deposits or key money, we explain in a related article, so please take a look.
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What are the disadvantages of no security deposits or key money? We've verified if it's really advantageous!
A free rent period is a period during which rent is free from the contract date. If it's one month of free rent, you don't pay rent for one month, and if it's two months, you don't pay rent for two months. Free rent periods are sometimes set by management companies as campaigns to prevent vacancies. This trend is particularly common in high-end rental properties, but many properties with free rent periods also have penalties for early termination. Be sure to check when contracting for properties with free rent periods.
High-grade properties are often operated by major corporations or real estate funds, and their performance is evaluated based on monthly vacancy rates and rental income. Therefore, they tend to dislike early termination. It's common for penalties to be set as a means to prevent early termination, so it's essential to check the contract terms.
This article discussed whether you can terminate a two-year lease for a rental property midway and whether there are penalties. Just because it's a two-year contract doesn't mean you have to stay for two years; it's surprising how little-known this fact is. When terminating mid-term, be mindful of the notice period and early termination penalties. Also, consider the restoration of the property upon leaving. Even if you need to terminate the lease due to sudden circumstances, don't rush; first, check the contract documents and proceed with the procedures. Thank you for reading until the end.
