Ending a Tenancy and Breaking a Lease - Compensation

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Where a tenant terminates a fixed term early, the landlord is entitled to compensation for losses incurred as a result of the early termination.

What the law seeks to do here is to ensure that the landlord doesn’t suffer financial loss as a result of the early termination, but not to allow the landlord to profit from the situation. In other words, the object of the compensation is to put the landlord in the same position as he or she would have been in had the tenant not terminated the lease early.

The RTA does not provide for a “break lease fee” or penalty. Many landlords and agents try to get a full week’s rent as a ‘break lease fee’ irrespective of their genuine advertising costs. Under RTA Section 84 the landlord is entitled to compensation for:

  • The loss of the rent that they would otherwise have received had the tenancy continued to the end of its fixed term; and
  • The reasonable costs involved in reletting the premises (e.g. advertising, reimbursement of legitimate agent's costs).
     

Note, however, that the landlord’s ability to recover compensation is limited in several ways.

  • First, the amount ACAT may award for loss of rent is limited to 25 weeks rent, or until the agreement was to end anyway, whichever is less.
  • Second, the amount relating to reletting costs is limited to the genuine cost and capped at a maximum of one week’s rent. This is the absolute limit, there is no option to add on GST or advertising costs. Also, if the cost is less than one weeks’ rent then that is all they are entitled to. You can ask for an itemised bill detailing the costs.
  • Third, since the landlord would incur reletting and advertising costs at the end of the fixed term tenancy anyway, there is a good argument that compensation for those costs should be calculated on a pro-rata basis, because they are not new costs but costs brought forward. Section 84(4) requires the Tribunal to consider when the tenancy would have ended and the landlord would have incurred advertising costs.
  • Finally, RTA s 38 provides that any party to a tenancy agreement seeking compensation has a general duty to mitigate (reduce or avoid) their losses. According to this rule, a person cannot recover compensation for a loss which could have been reasonably avoided. This means that the landlord has to ensure that reasonable steps are taken to find and accept a new tenant. Failure to do so may mean that the landlord is barred from recovering compensationfor all or part of the loss from the tenant.

Examples to watch for are a landlord failing to advertise the premises quickly and effectively or; refusing reasonable applications.

Advertising at a higher rent may be a failure to mitigate depending on the circumstances.

Where the higher rent is unrealistic and acts as a deterrent to prospective renters, then arguably it would be a failure to mitigate.

However, the closer to the end of a 12 month fixed term tenancy an agreement is broken, the less likely a reasonable increase is likely to be a failure to mitigate, because the landlord is entitled to increase the rent every 12 months.

Keep a copy of any comparable premises being advertised at the same time in the same suburb (listings such as on www.allhomes.com.au).

 

Information supplied courtesy of the Tenants Union of ACT

Further information and advice for ACT tenants can be sourced from

www.tenantsact.org.au