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Update – Residential Tenancies Act – Break Fees

On 1 November 2019 changes to the Residential Tenancies Act come into effect. This post summarises the changes relating to Break Fees.

This change aims to outline how break fees are to be calculated.

A tenancy agreement may include a break lease clause that requires a tenant to pay a fee if they wish to end the tenancy early.

At Bolton & Co we believe that it is best not to include this clause because it allows the tenant and the owner more flexibility to negotiate an early exit if requested. We feel that the advantages of omission far outweigh the potential benefit of including the clause.

Under a fixed term lease, the tenant is responsible for paying the rent until the end of the term. If a tenant wants to exit early usually the landlord agrees to seek a new tenant and the existing tenant pays the rent up until the new tenant starts a new lease and pays rent. Of course there is the risk that the tenant may stop paying rent once they decide they want to leave, but even if you have a break lease cause prescribing an amount to pay to exit a lease, the tenant can always refuse to pay that. The process to recover losses in any case is arduous.

We feel that this is a clause that doesn’t have value to our owners, so we are pleased that it is an optional item.