What is an Early Lease Termination Agreement?
An Early Lease Termination Agreement (ELTA) is a mutual agreement between a landlord and a tenant that allows for the termination of a lease prior to its agreed expiration. Such agreements come into play for a variety of reasons. A tenant may request an early termination of its lease because of personal or business related issues that prevent the tenant from maintaining its occupancy. Or, a landlord may want an early termination to accommodate a new commercial development in the area or in response to a prospective tenant seeking a space that is currently occupied.
While an early termination accelerates the timing of a lease , in many cases this type of agreement is wholly beneficial to both parties. A landlord does not need to spend additional money to force a tenant out of the property through litigation or other legal means. Plus, landlords often retain a healthy relationship with the tenant that will strengthen the reputation of the landlord and put them in position to lease to the tenant again once the occupant improves their circumstances. Tenants also benefit from the expedited termination of their occupancy by reducing or eliminating their rental payments and by allowing them to consider opportunities elsewhere that they may have been precluded from because of their existing lease.
Essential Features of an Early Lease Termination Agreement
In order for an early lease termination agreement to be legally binding, it must be specific to the leaseholder and the terms of termination. The general rule in Virginia is that a consumer or business may not waive legal rights by contract that are expressly or statutorily prohibited from being waived. However, leaseholders have greater bargaining power and thus may anticipate fewer rights provided in the law, provided the leaseholder is on notice that the agreement may provide for less than the law allows.
There are a few essential elements that should be included in any early lease termination agreement. The following items are some of the most common components of an early lease termination agreement:
Important: Everything in Section 7.26 is subject to the disclosure requirements in Sections 55-248.6 and 55-248.6:01 through .05 of the Code of Virginia; an example clause that is prohibited from appearing in a rental agreement or lease is as follows:
Twenty-four Hour Notice Requirement. For the purpose of 55-248.13 and 55-248.17 of the Code of Virginia, and any other code references deemed relevant by the parties, the parties agree that serving a 24-hour notice to you of entry during times you are not present at the premises is a reasonable method of serving you notice. Nothing in this paragraph is intended to release the landlord from any statutory duties imposed on landlords in Virginia or elsewhere.
A lease can be terminated due to failure to pay rent, convinction of crime in the dwelling, correction of a condition dangerous to health or safety, unlawful drug activity, or violation of a substantial obligation. In such cases, there are limited ways a tenant can terminate a lease early and avoid penalties, which are typically outlined in a properly worded termination agreement.
Guide for Preparing an Early Lease Termination Agreement
When commercial real estate parties intend to end a lease early, such as through an early termination agreement by mutual consent, the best results will likely come from a "made-to-measure" document that suits the specific circumstances of the situation and the interests of the parties. Because commercial leases cover various controversial matters and are usually complex, these agreements often go beyond the basics of the termination and settlement of the landlord’s claims and receive greater scrutiny and bargaining than the parties may expect.
The most effective early termination agreements attempt to anticipate issues of importance to the parties and balance their countervailing needs. This includes evaluating, negotiating, and documenting some of the more important aspects of the agreement, including the following: The discussion below briefly highlights some of the matters that usually need to be resolved before drafting the termination agreement.
The "bare bones" structure of the termination agreement should be considered when negotiating the critical terms of the deal. For example, if the parties negotiate everything (or at least the critical aspects) in a simple letter agreement, it’s easy to think that they’ve covered all the important terms necessary to avoid future disputes. Although the parties may have covered all of the material provisions of a "stand-alone" termination agreement, those provisions may not be integrated and neither party may have given the "big picture" enough thought. For example, which party, if either, will pay for the re-leasing commission? If the tenant no longer has a right of possession, are the rent and occupancy period revision provisions appropriate? These questions and many others should be resolved before the parties start drafting the termination agreement.
The summary above of the basic elements that may require attention before drafting the termination agreement is not exhaustive, and the parties may want to consider other matters before documenting their deal. The most circuitous route to a mutually acceptable termination agreement usually begins with insufficient or no consideration of the important deal terms before starting the document drafting process.
Common Grounds for Early Lease Termination
Tenants and landlords may seek an early lease termination for many reasons, such as:
Relocation: An early termination may be necessary because the tenant or landlord is relocating in order to take a new job, move closer to elderly family that need more help or move to a bigger place after having a new baby. Even where the tenant is not at fault, the landlord often only has limited flexibility in permitting someone else to move in for the original tenant and therefore would not be required to let the tenant off of the lease as a matter of law.
Financial Hardship: Losing a job, unexpected medical bills or other financial difficulties can result in a tenant being unable to meet their obligation to pay rent and therefor requiring an early termination.
Property Problems: Property issues can include everything from the property being less than advertised (e.g., not providing all of the utilities, not furnishing appliances and/or not providing the use of common space) to damages to an uninhabitable unit which the landlord did not fix promptly. In such cases, the tenant has a stronger argument for an early termination although it would still usually be necessary for the tenant to give the landlord a reasonable opportunity to remedy the situation before breaking the lease.
Legal Implications and Tenant Standing
Before signing an early termination agreement, it’s essential to know the legal implications for both the tenant and landlord. Failure to adhere to local housing regulations or neglecting to seek legal counsel beforehand could leave either party at a huge disadvantage.
Landlords hold the responsibility to present legally sound agreements and ensure compliance with their state and local laws. Likewise, the tenant should be aware of his or her rights and responsibilities under both the law and the terms of the lease agreement. These considerations are especially important for tenants. For example, some states prohibit landlords from denying a reasonable request for an early lease termination where the tenant has been called to military duty. Other states may allow the tenant to break the lease for other compelling reasons, such as domestic violence. Likewise, landlords may be legally obliged to provide up to certain amount of days’ notice for the tenant to move even when an early termination agreement is in place.
In addition, landlords have a responsibility to familiarize themselves with local regulations when it comes to early lease terminations. This includes their obligations regarding advertising the property to find a new tenant, the process for inspecting the property for damages, how to process the request for the return of the tenant’s security deposit and so on. In many cases , a landlord may not keep any portions of the security deposit that correspond to claims for rent or lease violation fees if they do not follow proper procedures for the early termination of a lease. Some landlords are even obligated to mitigate damages by seeking a new tenant to fill the space before the lease has run its term.
In a local context, New York State tenants and landlords who enter into an early termination agreement should be aware that any personal or confidential information pertaining to the early termination will be subject to the protection of New York Real Property Law ยง 227-e. An "early termination agreement" is one that requires the tenant to vacate for a period shorter than the original lease agreement, in exchange for an allowance or credit toward rent, or for any other reason. It may therefore be necessary to consult with a New York attorney to advise on the particular issues specific to most New York counties.
Retaining legal counsel can be beneficial to both landlords and tenants before executing an early termination agreement. Not only are such agreements usually irrevocable once signed, but improper language in the document may heavily favor the landlord. Likewise, landlords have significant legal obligations if they agree to an early termination. It’s crucial to have a legal advisor parse the agreement for you prior to signing anything.
Early Lease Termination Agreement PDFs for Download
The drafted early termination lease agreement template is available for you to download and use as an editable pdf, and also as a pdf version that can be printed and filled out by hand. Ultimately, this commonly used early termination leasehold agreement can be employed by landlords and tenants to best determine the terms of lease termination to prepare for the return of security deposits, repair of property damage, and any other requirements unique to the rental that are required by state law.
Answers to Common Questions
Termination of Tenancy Early FAQs
Q: Am I legally obliged to enter into an agreement if my landlord asks me to pay the rent early in exchange for letting me leave before the end of term?
A: No. This will be a sham arrangement and will not be enforceable against you.
Q: Is the landlord allowed to force me into an early payment arrangement?
A: No. A landlord cannot force you to leave a property before the expiry of your term, however there is no sanction if you agree to leave in return for an early rent payment. Such payments would however need to be agreed in writing.
Q: Have I wilfully breached my tenancy agreement if I leave before the end of term?
A: No you are not in breach of your tenancy as long as you leave on the date you have agreed with your landlord.
Q: Can my landlord refuse to let me out of my term?
A: No . The contract you sign at the commencement of the lease legally binds you to the tenancy for the entire term. However, your landlord does not have to let you go before the end of term.
Q: How can I obtain the legal right to leave my tenancy early?
A: You can force your landlord to grant you a surrender in respect of the portion of your term that you would like to end early or alternatively you may seek a sublet with replacement tenants. If a landlord unreasonably refuses to allow you to leave early, a court will compensate you.
Q: Can I get back rental payments paid early?
A: If you have entered into a proper early termination agreement, then there is no claim for overpaid rent. If you feel that your landlord has been unreasonable in forcing you to pay the rent early or is being unreasonable with a sublet, then you may seek to recover the early rent through a court order.