With rapidly rising rents and fluctuating property values, one of the topics we are getting a lot of questions about recently is regarding the termination of lease agreements, both residential real estate leases and commercial real estate leases. These questions come up both from tenants who want to leave the property, and from landlords who want to terminate a lease.
A month-to-month lease is a lease for which there is no set term or date of expiration. It may or may not involve a written and signed lease agreement and may simply be the result of a tenant remaining at the property with permission from the landlord after the lease expires.
Most leases have language setting out a date of termination which clarifies the form and how much notice must be given by either party. However, in certain circumstances if there is no written lease signed by both parties, or the tenant is a “month-to month” tenant, noticed is still required to terminate the lease.
A termination notice is typically called a “Notice to Quit.” If there is no notice to quit given, or insufficient time has been allowed between providing this notice and the termination date, damages can be awarded when proper termination procedures have not been followed.
First, if a tenant is paying rent and a landlord is accepting rent in the absence of a written lease agreement, or if the original term of a lease has expired and the tenant remains at the property with the landlord’s permission, this is in fact, in a “month-to-month tenancy”, or a “month-to month lease”, or a “periodic tenancy” or a “hold-over tenancy”.
All these are descriptive terms for the lease and are interchangeable and mean approximately the same thing.
A landlord who desires to terminate this type of lease must provide notice of lease termination to the tenant that he is ending the landlord/tenant relationship, and that the tenant will be required to vacate the property. The period of notice for a “month-to-month tenancy”, meaning how far in advance of the termination date the landlord is required to give notice is governed by how long the tenant has been in the “month to month lease” according to the following periods of time:
- 1 year or more at the residence or property: 91 days notice
- 6 months to 1 year at the residence or property: 28 days notice
- 1-6 months at the residence or property: 7 days notice
- 1 week to 1 month at the residence of property: 3 days
- Less than 1 week at the residence or property: 1 day
This is one reason it is generally to the advantage of both parties to include a written agreement in any lease arraignment.
Please Note: A tenant is entitled to very little notice in the early stages of a “month to month tenancy.” However, if the tenant has been in the residence for a year of more then a minimum of ninety-one days notice of termination must be given to the tenant.
Remember, it is important to document how long the tenant has been in residence at the property so that the proper amount of notice time can be given. Unless both parties agree to a written lease agreement which stipulates some other schedule for the termination of a tenancy, these statutory time periods are in effect and are legally binding on both the landlord and “month to month” tenant.
You may also find the information in this article (How to Use “Demand for Compliance Under Colorado Landlord Tenant Law) useful prior to initiating termination of a lease.
Early Termination of a Lease
In the event that there is a written lease agreement between the parties, the term of the lease is generally specified. Occasionally, there is a reason for one party to quit, or terminate the lease before that lease term has expired.
For example, this may occur if the property is sold, or if the tenant discovers that there is insufficient space for his growing business or family, or if there is a change in circumstances that require a party to move from the leased property.
In such cases, it is important to realize that unless both parties come to an agreement, early termination of a lease without an agreement is said to be a “breach of contract”, and damages may be awarded to the non-breaching party.
A lease termination agreement can be reached in advance, if a provision for early termination is written into the lease to begin with. Or, the parties can always agree to an amicable arrangement (in writing) through negotiation.
Please Note: Neither party can unilaterally quit the lease before the term of the lease has expired without risking a judgment for damages.
Damages can be sought by the non-breaching party. A tenant who stops paying rent, whether he leaves the property or not, is said to have “breached” the lease. A breaching tenant is liable for the rent due, so long as the landlord does his best to mitigate the damages incurred. This means that the landlord must attempt to re-rent the property within a reasonable time period and can thereafter then seek recovery from the breaching tenant for the unmitigated or unrecovered losses.
The breaching tenant is liable for rents incurred while the property is vacant, and may even be liable for lost revenue if a new tenant pays a significantly lower rent than the previous tenant had agreed to pay. In addition, a breaching tenant can also be liable for expenses incurred in preparing the property for a new tenant, or expenses that arise from putting the property back on the market for lease.
Likewise, the landlord who forces a tenant out of a property before the lease has expired is said to have “breached” the lease. A breaching landlord may be liable for expenses the tenant incurs, such as moving costs, or an increase in rent at the new property the tenant moves to. There may be other damages, as well, but particularly in commercial real estate leases, the potential for damages related to moving costs can be very high as well as any lost business revenue which can be attributed to the move. Damages for moving costs in a residential real estate lease which is terminated early may be more predictable, but if anything, less predictable in terms of damages for increased rent the former tenant must now pay.
To Stay or To Go: Is it Worth it?
There are a myriad of reasons a tenant may be willing to fight to stay in the same neighborhood, or business property thereby forcing the previous landlord to pick up the costs of increased rent, such as children remaining in the same school, the proximity to public transportation or a work site, or even lost business revenue due to the business being relocated.
In spite of the potential for damages to be awarded, there are still times when it is advantageous to one party to terminate a lease ahead of schedule. Perhaps the tenant has had a change in family circumstances, or has been offered a job in another state, and the benefits of that job are substantial enough to make it worth the costs of early termination of their lease, or maybe the business has found another location better suited for future business expansion. Or perhaps the landlord has had a very nice offer on the property, or someone has picked that location as an ideal location for some other purpose, or any number of circumstances that affords the landlord a substantial increase in the returns on the property.
The best approach, of course, is to have addressed these contingencies in the lease document both parties agree to at the outset of the lease. (Download my checklist, “Checklist for Determining If You Are Ready to Sign that Colorado Residential Lease Agreement”)
A reasonable period of notice to quit can be specified, along with a reasonable “buy-out” for the lease. This is truly a case of “an ounce of prevention is worth a pound of cure.”
But if that is not the case—if such provisions are not addressed in the original lease—then the best practice is to approach the other party and offer to negotiate an end to the lease. Either party can offer to buy out the lease, so long as the other party agrees to the terms. It may or may not be expensive, but it is certainly much better than a damaged reputation, negative credit reports, expensive litigation, or a judgment entered against the offending party.
It is generally much less expensive to negotiate an early end to the lease than it is to defend a suit for damages that arise from terminating the lease improperly.