Early Lease Termination

Last month we discussed early termination of a lease agreement in the case of active duty military transfers. This month, we are going to discuss what happens when a tenant informs you – for whatever reason – that he is moving despite being under an unexpired residential lease agreement.

 

As discussed last month, a residential lease agreement is an installment contract for a fixed duration of time. Alabama’s Landlord/Tenant Act does not allow either party (the landlord OR the tenant) to unilaterally terminate that contract when both parties are fully performing.  Simply put, there is no “I changed my mind” provision or “I want to buy a house” provision codified into state landlord/tenant law.

 

However, Ala. Code 35-9A-423(c) requires that a landlord mitigate their damages if a tenant abandons a leased premises. If a tenant decides to abandon the leased premises in the middle of a lease agreement, the landlord cannot simply charge the tenant for the full value of the contract.  To properly mitigate, an Alabama Landlord is under an affirmative obligation to make reasonable efforts to rent the leased premises at a fair rental. This can become complicated when a landlord seeks to sell the property rather than rent it, but in most cases demonstrating mitigation is as simple as showing that the landlord treated it like she would any other vacant rental property.  Mitigation does not require that a landlord rent the leased premises over other available units.  Once the landlord is able to re-rent the premises, it cuts off the prior tenant’s obligations under the lease agreement.   Further, you cannot contract around your statutory duty to mitigate your damages.

 

Practically speaking, this means that if a tenant decides to move mid-lease, a landlord has to attempt to re-rent the property.  Once it re-rents, state law allows the landlord to charge the tenant for his lost rent, but nothing else.

 

The mitigation requirement leaves both the tenant and the landlord in a state of flux and uncertainty because no one knows when the leased premises will re-rent. .

 

A landlord can circumvent the mitigation problem by adding a “Buy-Out Addendum” to their lease agreement.  Also referred to as a graceful exit provision, this Addendum clearly states the terms and conditions that a tenant must meet in order to terminate the lease agreement early.  A Buy-Out Addendum typically requires that a tenant be current on their rent and give a sixty day notice (paying through that notice) as well as forfeiting any claim on their security deposit but the terms can run the gamut. A Buy-Out Addendum may also address who bears the costs of “re-leasing” a property and issues relating to utility payments while the property sits vacant.

 

In closing, while all Alabama Landlords want paying tenants to fulfill the full term of their lease contract, life is messy and oftentimes complicated.  If a tenant wants to move, they will probably move and having a “Buy-Out Addendum” provides for more certainty in that transition.

 

If you have any questions regarding mitigation, you may contact our office at (256) 562 -1999 or seek the advice of outside counsel. This article is designed for educational purposes only and does not form an attorney-client relationship where none currently exists. No representation is made that the quality of legal services provided by our law firm is greater than the quality provided by other lawyers.

Leave a reply


4 + seven =