Many residential and commercial tenants impacted by the COVID-19 pandemic need to end long-term leases. This guide will show tenants how to break a lease without paying any additional rent to a landlord.
BREAKING YOUR RESIDENTIAL LEASE
Declare a Constructive Eviction
In many cases tenants will have a legal reason based on their landlord’s acts or failures to act to move out without any further payment of rent. If breaches by your landlord are pervasive and serve enough, you will be able to not just move out penalty-free but also sue your landlord for a constructive eviction.
Harassment: Entering your unit without notice, and physical or verbal threats are examples of landlord harassment. If harassment is continuous and severe enough, you may void your lease, move out, and not owe your landlord any further rent under the agreement.
Habitability: All residential rental agreements contain an “implied warranty of habitability”, which means that your landlord has a duty to make sure that, at a bare minimum, the unit is free of vermin, has adequate heating, plumbing, and electricity, and has hot and cold water. Under certain extreme circumstances, a tenant can move out of an uninhabitable rental and the landlord is not entitled to collect rent from that tenant.
Illegal Unit: If you live in an in-law apartment, a backyard cottage, a garage apartment, a granny unit, a basement, or an attic, the unit may be illegal. Under California law, contracts that are entered into for an unlawful purpose—such as a lease to rent an illegal unit—are void. If your unit is illegal, you may move out and your landlord is not entitled to additional rent.
Nuisance: Neighbor disputes are common, but some may be so extreme that they rise to the level of a nuisance. Excessive noise or smoking by other tenants in the building are common nuisances that, if not stopped by your landlord, could force you out of your home.
Dangerous Conditions: If you are injured on the property because of an unsafe condition that your landlord knew or should have known about but failed to repair it, your landlord can be held liable for the injury and you may move out without paying any further rent.
If a tenant is constructively evicted, the landlord may be liable for the return of the tenant’s rent, future rent, emotional distress, attorney fees, and in some rent-controlled jurisdictions, a tenant’s damages will be tripled.
Point Out Landlord Breaches to Reduce Your Debt
Tenants that are on the hook for additional rent for breaking their lease should point out their landlord’s breaches in an effort to negotiate a reduction in their debt. Even if the landlord’s breach does not rise to the level of a constructive eviction claim, tenants can still claim that their landlord failed to make repairs or invaded their privacy, which warrants a lowering of the debt. Also, a reduction in housing services or amenities such as the closure of an onsite pool or gym due to social distancing rules without fair compensation is leverage to negotiate the amount owed down.
Tenants with a lot of time remaining on their contract should try to negotiate a payment amount in exchange for being released from the agreement. There may already be a lease “buyout” clause in your contract. Since most tenants are protected from eviction during the governor-declared state of emergency, your landlord may agree to keep your security deposit, which typically equals one to two months rent, to terminate the agreement rather than deal with a tenant who is not able to pay rent and who cannot be evicted.
Landlords Have a Duty to Mitigate Their Damages
If there are no issues with your unit, your landlord still has a duty to use reasonable and good faith efforts to re-rent the unit as soon as possible, but you will be responsible for the remainder of the lease until the landlord finds a new tenant.
Since tenants are liable for rent until a replacement is found, which will be difficult while shelter-in-place is still in effect, they should take steps to limit their liability. Make sure your landlord is actively marketing the unit. If your landlord is not making any attempts to re-let the unit, they may not be entitled to additional rent from you. Tenants can also place an advertisement for rental to help find a replacement, but the ad should disclose that the post is by the existing tenant.
Consequences for Breaking Your Lease
Your landlord may sue you in small claims court for the rent owed and any out-of-pocket damages they may have incurred. The burden is on the tenant to show that the landlord did not make any effort towards re-renting the unit and therefore is not entitled to additional rent. Evidence such as testimony from your neighbors, screenshots of computer searches for advertisements, and the unreasonable denial of potential tenants may be used to show that the landlord’s failure to mitigate their damages. If successful, a tenant can lower or eliminate the debt the landlord claims is owed.
If the amount owed is more than $10,000, the landlord may sue in superior court. Tenants should check their lease to determine if they are responsible for the landlord’s attorney fees. In most cases, because of the cost and time it takes to litigate, landlords are often willing to negotiate with the tenant and settle for some amount of money now rather than follow through with a lawsuit.
Instead of suing, a landlord may decide to take you to collections. If you receive a letter from a collection agency, respond in writing right away. If the debt is legitimate, it is best to work with the creditor. Most creditors will accept a reduced offer for payment and not expect to collect on the total amount.
While not ideal, as a last resort, tenants that owe a substantial rent debt to their prior landlord may need to consider filing for bankruptcy.
BREAKING YOUR COMMERCIAL LEASE
Look for These Clauses in Your Lease
Many commercial tenants need to break their leases because they are unable to operate due to COVID-19 shelter-in-place laws. Below are a few common clauses tenants should look for in their agreement that may release them from their contract.
Force Majeure: This provision is sometimes referred to as the “acts of God” clause. This clause allows a tenant to terminate the agreement if events beyond the parties’ control make it impossible for either the landlord or the tenant to fulfill their contractual obligations. Natural disasters such as earthquakes, or other events such as war or acts of terrorism are some events that may be listed under this clause. Force majeure clauses are narrowly construed and courts will not go beyond the particular events that are listed in the lease. Therefore, tenants wishing to invoke this clause during the pandemic must have language in their contract that specifically pertains to public health emergencies, or epidemics and/or pandemics.
Co-Tenant Operation Decrease: Leases for mall or shopping center retail spaces may have this clause. Because the retail tenant is dependent on foot traffic, which largely depends on the level and nature of occupancy of other spaces in the mall, their contracts may contain terms regarding the level and nature of occupancy that the landlord must maintain. If the landlord cannot fulfill these requirements and the tenant’s business is affected, this clause may be triggered and potentially allow the tenant to terminate the agreement.
Frustration of Purpose Doctrine: This doctrine is available even if it is not a specific clause in the lease. It may be invoked when unforeseeable circumstances or events prevent a tenant from fulfilling the principal purpose of the agreement. The purpose must be one that was contemplated by both landlord and tenant at the time of entering into the contract. This doctrine is often applied when government actions undermine the tenant’s ability to carry out their principal purpose. Tenants should understand that this doctrine is only successful when the lease purpose is rendered permanently impossible, not just temporarily limited.
Your Landlord May Have a Duty to Mitigate
Many commercial leases place the burden to mitigate damages on the tenant. Generally, a landlord cannot just let a property stay empty and rely on the tenant to continue to pay rent; they must re-rent the unit as soon as reasonably possible. However, the landlord can elect to continue the lease even after the tenant leaves and can continue to collect rent from that tenant without having to mitigate. In order to do so, the contract must specifically have this right reserved and must also allow the tenant the ability to sublet and/or assign, which essentially shifts the burden to mitigate onto the tenant.
Either way, tenants should still attempt to negotiate with their landlord, especially right now when small businesses cannot be evicted because they are unable to pay rent. Your landlord may be willing to keep your security deposit, if it is large enough, in exchange for releasing you from the contract.
Declare a Constructive Eviction
A claim of constructive eviction is more difficult in a commercial tenancy than in a residential one. Many commercial leases contain clauses that waive a tenants right to terminate and limit the tenant’s remedies for a default by the landlord to monetary damages and/or injunction. Courts honor these clauses and will not permit a tenant the defense of constructive eviction if the landlord pursues the defaulting tenant for rent.
However, if your lease does not contain this waiver, and you vacate due to severely deferred maintenance or repairs, dangerous conditions causing injury, or a continuous nuisance, you may have a defense of constructive eviction. If you are forced to vacate due to your landlord’s acts or failure to act, your landlord may not be entitled to further rent payments.
If a commercial tenant is able to claim a constructive eviction and sues their landlord for damages, they may seek the return of rent, future rent, damages for a loss of business, and attorney fees.
Consequences for Breaking Your Commercial Lease
Because the amount of rent owed when a tenant breaks their commercial lease can be substantial, a landlord will likely sue in superior court rather than small claims court. If this is the case, the tenant may be liable for the landlord’s attorney fees if they lose at trial. Check the lease for an attorney fee clause. Tenants should attempt to negotiate if they are sued. Given the cost and time it takes to litigate cases, landlords are often willing to settle for some amount of money now rather than follow through with a lawsuit.
It is less likely that a commercial tenant will be sent to collections. Typically the amount of rent sought by the landlord is large enough that they will choose to sue. But, if a tenant does receive a letter from a collection agency, they should immediately respond in writing. If the debt is legitimate, it is best to work with the creditor. Most creditors will accept a reduced offer for payment and not expect to collect on the total amount.
While not ideal, as a last resort, tenants that owe a substantial rent debt to their prior landlord may have to consider bankruptcy.
When Should Tenants Contact An Attorney?
This guide is not meant to replace legal advice from a tenant rights attorney on your particular matter. Each case is unique and tenants can speak to a residential or commercial tenant rights lawyers by Tobener Ravenscroft LLP by calling 415-504-2165.