Breaking Lease When Buying a House
Can you Break a Lease when Buying a house?
Timing a lease ending date and a home purchase perfectly is tough… Real tough. You need to start the process early in today’s market… So what are your options?
The first question I generally get in this situation is “Can I break a lease if I buy a house?”. Now every lease is different, but I have not seen too many leases that give you an easy no penalty out. So generally speaking, the answer here is no… That is unless you get permission from your landlord.
Now breaking lease laws differ by state, so the options and consequences may look different depending on where you live. Even if you can’t legally end a lease, there may be a few other methods that could get you out of your lease.
Honesty is the best policy. And that is also the case when it comes to buying a house. The first thing you want to do is let your landlord or property manager know that you are looking for a new home. Larger buildings will generally have policies that relate to breaking a lease while smaller landlords may just ask for you to work with them in the process. Heck, if you are paying below market rent… Then the landlord may even be excited to get the apartment back and re-rent it!
The first thing you will want to do is look for a Home Buying Clause in your lease. Very few leases have these, but you may be one of the lucky few. If your lease includes a home buying clause, this means that you can terminate your lease early if you have bought a new home. This is provided that you give your landlord proper notice.
If you don’t have a Home Buying Clause, then you can try to buy your way out. Your lease may say that you can terminate your lease by paying an early termination fee. The cost of this fee can vary based on the terms laid out in the lease. Generally speaking, you can expect to pay a minimum of 1 to 2 months rent as a penalty for breaking the lease.
Remember that even with this clause, you still need to give proper notice. You can’t just move out and say, “Hey, I am breaking my lease. Here is the fee”. You are most likely going to end up in court and be forced to pay for the remaining months on your lease.
Another option when talking with your landlord is asking about finding another acceptable tenant to take over the terms of the lease or for them to sign a new long-term lease. Many times a tenant will guarantee that the new tenant will pay at least what they are currently paying otherwise they would make up the difference. Tenants oftentimes will also promise to incur all other costs associated with finding the new tenant. The idea with this option is trying to make it as seamless and risk free as possible for the landlord so they are more agreeable.
I know something that we always offer in this situation for our buyers is that we will find a new tenant for the property at no cost to the landlord or our client. It also ensures that you know someone is putting in a lot of effort trying to find your replacement and thereby limiting your overall exposure.
If you know buying a home is on the list of things to do in the next year and your lease renewal date is coming up, then this is when you may want to bring this up to your landlord and see if they would be willing to switch your lease terms to a month-to-month lease. Maybe add in a 60-day notice to entice them. This takes a lot of advanced preparation, but could be huge if you are a good planner!
One last trick in the bag is an accounting trick if you will. When you pay rent, you pay for the month that you are about to use. When you own a home, you pay for the month that you just used. So let’s say it is March 1st. If you are a renter then you are paying your payment for the time you are about to use in the month of March. If you are a homeowner, then you are paying for the month of February.
So where is the accounting trick that could be helpful? Let’s say your lease is up in August. What this means is that you can close anytime in July and your first mortgage payment will actually be on September 1st. What this means is that you would not end up paying double with a rent and mortgage payment.
This essentially just buys you a little time. So let’s say you find your dream home in April 1st… Now on average it takes 45 days to close on a property. So that means that a normal closing date would be the middle of June. In this case what we would try to negotiate is an extended closing date to June 1st. This would mean you have two months to do some improvements to your new home and move in. All while not having to pay two housing payments.
The negative of this scenario? You do end up having a little higher closing costs as there will be more prepaid interest owed.
There you have it. Those are your options. You want to give yourself time. You want to be upfront and transparent with your landlord about your goals and find out your options and what they would be willing to do.
if you want to talk in person about your Real Estate Goals then reach out to Massachusetts Best Realtor, Jeffrey Chubb at 617-480-2600 or reach him by email at [email protected]