Early lease cancellation by mutual agreement: Dos and don'ts

Early lease cancellation is not unusual. However, tenants should be aware of the penalty fees charged for early lease agreement termination.

It is possible for a landlord and tenant to cancel the lease agreement by mutual agreement. However, in the case of mutual consent, an agreement must still be/will still have to be signed by both parties.

Safrea Chronicle reader, Belinda Friedland asks: What wording should be used in an early termination of lease letter by mutual consent of both parties, with no cancellation penalties?

Property law attorney, Marlon Shevelew, director at Marlon Shevelew and Associates Inc., says that early lease cancellation by mutual agreement is just that - it is dependent on the consent of both the landlord and the tenant. "The precise terms of any such agreement will therefore depend on what the parties can agree on."

Shevelew explains that typically, the early lease cancellation will include a longer notice period than the usual two or three month period. In this case, for example, the parties could agree that the tenant should vacate the property within 20 to 40 business days. The mutual consent agreement could also exclude the penalty fee - normally payable by the tenant (excluding any repair liabilities). However, Shevelew says that again, these terms will need to be agreed upon by both parties.

Alternatively, the parties may agree that the tenant pays an amount that is significantly lower than would otherwise have been justifiable to the penalty provision of the Consumer Protection Act 68 of 2008. In addition, there may also be an obligation on the tenant to make their best efforts to find a replacement tenant.

When there is no early lease cancellation agreement by mutual consent, the tenant will have to forfeit the rent deposit. However, according to Shevelew, "Normally, in the event of an early lease cancellation by mutual consent, the tenant will not forfeit the deposit. It will only be used for any repair costs or outstanding amounts such as electricity, and the tenant gets the deposit balance."

"Despite job losses, there hasn't been any increase in parties agreeing to terminate leases by mutual consent," points out Shevelew. "We are seeing a rise in the number of tenants defaulting on their rent. Tenants are being evicted and summons issued to recover rental arrears."

Could not charging early lease termination penalties be an advantage in the current economy? Shevelew says it makes sense, since the economy has slowed with many people losing income.

"As potential replacement tenants are hard to find, landlords are less willing to part with the penalty income that they could otherwise have claimed simply for the sake of convenience. Likewise, tenants are less able to afford to pay rent for the extended notice period. Often, it is much less likely that the parties will be able to come to an agreement if the tenant is already in arrears," he points out.

Dos and don'ts

For some people, early lease cancellation by mutual consent may be their saving grace to avoid eviction and summons. This would also be possible if the landlord were to agree to mutual consent.

Tips for tenants:

• Don't be in arrears when you try to negotiate a mutual cancellation.
• Do be aware that the landlord relies on the rental income (often to service the bond).
• Do make an effort to find a replacement tenant (even if you are not obliged to do so in terms of the agreement).

Tips for landlords:

• Do be aware of the personal circumstances of your tenant - they may have been retrenched or have incurred medical expenses.
• Do bear in mind that the time gained by a longer notice period should be used to find replacement tenants - not simply taken as extra income.
• Do weigh up the appeal of agreeing to a fixed amount and a fixed period and taking into consideration the administrative burden and costs of attempting to recover penalties from a tenant.

Edited by Gudrun Kaiser