REINSW spoke to three property managers to find out which option they use, and why.
Property managers’ views on break leases
Sandra McGee, Property Manager at Starr Partners Merrylands
A property manager since 1986, Sandra had been using the mitigation of loss option when tenants broke the fixed term of their tenancy agreement, however since June this year she changed to the optional break fee.
This was in response to three tenants who disagreed with the mitigation of loss charges, and the matters ended up at the NSW Civil and Administrative Tribunal (NCAT).
Sandra said: “We always used to use mitigation of loss because we found it didn’t cost the tenant as much money and the owners’ costs were covered.
“However this year we had three tenants take us to NCAT, even though our break lease fees were less than the bond, and in two of the cases my owners lost out even though we were claiming less than the four weeks under the optional break fee.
“I got the impression that the Tribunal thought we were wasting their time because if we used the four to six-week method the tenants could not dispute the claim and therefore we would not be at NCAT, and so we decided to switch to the optional break fee.
“The tenant is the one who now has the greater loss and it also means we will not have to go to NCAT over a tenant breaking their lease, which makes less work for us.”
"We have had one tenant since we changed to the break-lease fee option who came into the office and gave us the four weeks break-lease fee when he returned the keys with no dispute."
Lisa Indge, Managing Director of Let’s Rent, Balmain
“We have tried both options and found that the four to six-week fixed break lease fee was received with much dissatisfaction from tenants and did not work for owners either.
“I appreciate that the clause was introduced to limit the tenants’ liability, however, the bond amount is only four weeks.
“This means that if the tenant refuses to pay the four week break lease fee we would have to claim the full bond, leaving no other allowance for any other issues. Even worse, if we had used the six-week break lease fee then we would have to take the tenant to NCAT for the additional amount.
“As a result we use the mitigation of loss clause that requires the tenant to pay the owners re-letting costs, including the letting fee, advertising cost and rent until a new tenancy commences.
“This is detailed in their original lease which we read through with them at their induction so they know from the beginning what will happen if they break their lease. Tenants and owners both find this a fair way of dealing with a break lease.”
Michelle McLean, Senior Property Manager at Leah Jay
Michelle uses the new break lease clause because she says it is clearer for the tenant
She said: “We prefer to use the break lease clause because it is cut and dry and more certain for both parties. This helps to make it less messy because the tenant knows what costs they are liable for upfront.
“The tenancy can be finalised and bond disbursed without too much delay. In most cases the property would be leased within two weeks of the old tenant moving out, and in some cases the owner is able to benefit from the penalty fee being paid and new rent coming in.
“However it depends on the area the property manager works in as to what works best. Some property managers prefer the mitigation of loss clause due to vacancy factors and previous rents achieved. If it is a slow time of year then an individual property may take longer to lease, leaving the owner out of pocket.
“We always stipulate that the tenant is to pay the break lease fee at the time that they bring the keys back because this can often exceed the amount of the bond held, especially when there is a final water meter reading and inspection to be completed. We also let them know they cannot use the bond to offset the break lease fee.”