Facilitating Lease Termination
A basic principle of lease law is that, "what the parties have agreed to is accepted". The requirements for a valid lease to be formed generally require that the landlord offers terms to the tenant in a way that can be reasonably accepted. When it comes to termination of the lease however, the circumstances in which a lease can come to an end are diverse. This diversity is evident in both the circumstances which can allow for a lease to come to an end and the options available to the parties. If the lease is between a private landlord and a private tenant then their freedom to set the terms and effect the termination is more expansive than that of a commercial lease. Similarly, if the tenancy is between a commercial tenant and a commercial landlord then less emphasis will be placed on strict technicalities than in a case of a residential tenant and a social landlord.
The end of the basis of the contractual agreement usually occurs through a process called ‘termination’. Termination effects the end of the contractual relationship between the parties and this is recognised in both the case law and legislation .
The statutory basis for termination can, to a limited extent, be found in two pieces of legislation: the Housing Act 1988 (‘HA 1988’) and the Housing Act 1996 (‘HA 1996’). Both acts provide grounds on which a landlord may seek possession over the property if they wish to compel their tenant out of the property. However, other legal texts must be considered which provide limitations to the powers contained within HA 1988 and HA 1996. The Protection from Eviction Act 1977 (‟PA 1977") states that a landlord must have a court order in place before they can take steps to evict a tenant from a property. It also deals with how to terminate a property which has been granted to a person at a low cost. The Housing Act 1996 did away with many of the onerous requirements of requiring the tenant to effectively make requests to the court to terminate the tenancy. The Act allows both landlords and tenants to terminate tenancies by notice but requires the notice to be prospective and for it to be given in a certain way, namely served on the other party.
Legal Duties Following the Termination of a Lease
There are several legal obligations that both the tenant and the landlord (who is also referred to as the lessor) must comply with in accordance with the law. With annual residential leases, for example, it is necessary for both the tenant and the landlord to give each other at least 30 days’ notice prior to the expiration date of the current contract. No reasons are required, which means that the contract is only required to be performed until the applicable termination date. If either party fails to provide the necessary notice, the applicable contract is deemed to have been renewed on the same terms and conditions for another 12-month period.
The lease may also provide for rent increases upon renewal, but otherwise, the parties are free to agree to any terms and conditions, including any transfer of the deposit to the tenant, deductions from the deposit and when the keys must be returned.
A major concern is the final inspection of the let’s premises taking place prior to the tenant vacating the property. All tenants must receive their deposits back within seven working days after they have vacated the premises and keys have been returned, unless an agreement to the contrary has been reached. The tenant will also have to ensure that a forwarding address is provided, as well as obtain certified proof of delivery so that he or she can prove that the deposit was returned to him or her. A deposit may only be withheld if there was some agreement in the lease itself that something may be deducted, and if the tenant has defaulted on the lease by either damaging the premises, destruction of any fixtures or not paying his or her last month’s rental. While the maximum amount that may be allocated to deterioration of the property is one month’s rental, the tenant should be informed of any deductions from the deposit beforehand.
Options for Lease Contract Renewal
Renewal or extension of the lease contract can be the result of the renegotiation of the conditions of the initial contract, or alternatively a proposal from the landlord to enter into a new contract under the same conditions of the original contract. Hereunder are some considerations on both scenarios.
a. Negotiated Extension or Renewal After its expiration, the original contract only furthers its effects provided that the parties agree to a new contract for that purpose. Lease renewals are to be negotiated for a determined lease term or indefinitely. The latter must be agreed in advance with the landlord, otherwise it shall be deemed renewed for an indefinite period.
In this renegotiation process, although the parties are free to negotiate the new terms and conditions, the following issues must be taken into consideration: Compensation of any excess of use of the premises having regard to the agreed terms. After its expiration, if the tenant continues to occupy the premises with consent of the landlord, it may have the right to renew for an indefinite term. During this term, fee increases must be determined in accordance with the annually-prepared "Indice Nacional de Precios al Consumidor", which indicates the evolution of the cost of basic food products in the country.
b. Non-consensual Extension or Renewal By law, on expiry of the term, although the tenant continues to occupy the premises with consent of the landlord, it may have the right to renew for an indefinite term. During this term, fee increases must be determined in accordance with the annually-prepared "Indice Nacional de Precios al Consumidor", which indicates the evolution of the cost of basic food products in the country.
Recovering Security Deposits
One of the first pieces of knowledge that both landlords and tenants should acquire is what to do and not to do with a security deposit. Usually, at the beginning of the relationship, the tenant hands over a security deposit to the landlord to protect against default. The law then requires the landlord to hold the money in a trust account for the duration of the lease.
At the termination of the lease, the landlord will check the property for damages beyond normal wear and use. For example, if the carpet is stained and damaged beyond normal wear and tear, the landlord may be able to deduct the expense of carpet cleaning or replacement . But if the carpet was in good condition when the tenants moved in and there was no evidence of carpet cleaning at any other time during the tenancy, the landlord cannot deduct from the security deposit to replace the carpet. Therefore, the landlord must comply with the terms of the lease, which usually has terms and conditions related to security deposits, and/or the real estate regulations in place. If the landlord attempts to deduct from the security deposit these expenses, a tenant may challenge these deductions in court.
If a landlord did not open a trust account, the tenant can ask the court for the respective amount of interest on the security deposit. Additionally, if the landlord failed to return the security deposit within 30 days of the lease term without good cause, the tenant can recover up to double the amount withheld.
Dealing with Damage to the Property
As a rule, damages caused to the rental property by a tenant must be segregated from normal, wear and tear. If there is little or no wear and tear, potential claim disputes may go away. This requires the landlord to document the status of the property prior to the rental being occupied. Luckily, the October 31, 2010 revisions to Article 91 of the Code of Civil Procedure provided for by the California Legislature, allow landlords to obtain a tenant’s acknowledgment of the status of the property. A Declaration of Occupancy Statement executed prior to the occupancy of the rental unit, creates a solid business case for the extent of non-wear and tear inflicted by the tenant.
The landlord may also recoup expenses for cleaning the home, both before and after the tenant moves out. A good moving out coordinator will include a clean the house provision in the move out direction letter. We have found a "meter reader" type of device works great in monitoring the forgettable items in a move out, such as the refrigerator, microwave oven, and bathroom sink. These areas often slip the mind of a move out, and can work against them if left too long.
The tenant may come back with some supportable arguments on a move out, or if the damages on the unit are limited and there is little or no normal wear and tear. We have had several cases go to trial for specific item debits on a move out. The safety deposit deduction may be limited to categories that have a quantum of evidence in support, and direct loss and damages that are caused by an intentional act of the tenant are much easier to prove. Anything outside of that may become problematic, but here are some other arguments:
With a little bit of work and a bit of luck, this is how to maximize your return on the years of tenancy.
Moving to a New Lease
Moving forward with a new lease requires significant attention to timing of the transition and moving logistics. To the extent possible, start working on a new lease with enough time to allow negotiations to run their course and for you and any necessary contractors to have ample time to complete the transition.
If you are moving to another facility, often there will be a "transition" period where you will have to move out of your current facility but not yet into the new space. One option in that case is bridging the gap with sublease space. If you plan to sublease space, reach out to your network of brokers and begin the search as soon as you are confident that your schedule will allow you to make such a move .
With regard to physical relocation to a new space, a critical task will be scouting moving companies and moving dates. The earlier you begin that process the better. It is possible that you may only want to move on the weekend, and if that is the case it will be very difficult to find a company with availability on the dates you want. While it may be a challenge to forecast your relocation dates, try to get a general idea so that you can contact movers even weeks or months in advance.
If you are relocating a substantial distance you may have to consider temporary housing options in the new area while you search for suitable permanent space. This will be an important part of establishing your new footprint and will require significant planning.