buyout price for early termination

[axescot]

Jurisdiction

California

I'm looking for advice on buyout price for early termination of lease? In a little over a month, the lease on my rental is going to expire and my tenant asked to add a clause for one in the renewal. I normally only sign 1 year leases and if one isn't signed, I add $100 per month to go month-to-month (as stated in the lease). It sounds like my tenant has plans to move out in January which would be off-season. It might still be worth it for me. When I did a search on it, looks like most clauses have 60 day notice and an early termination fee equivalent to 2 months rent. It's never taken me more than 2 months to find a new tenant. It took me 2 months once because I was just starting out and learning along the way, and also that was during the winter. This is my first experience with this and am wondering if I am missing anything? I'm in California. I was thinking 60-day notice and 3 months rent as early termination fee.

 

[Tax Counsel]

I hate to say this, but you really need to see a CA landlord/tenant attorney on this one. CA has some of the most tenant friendly (and detailed/complex) residential rental laws in the country. In addition to state law you may have city/county ordinances that regulate this kind of thing as well. The penalties for screwing up on a residential rental can get expensive for a noncompliant landlord. While small landlords aren't regulated as heavily as the big rental operations, there are still a number of laws that apply to all landlords, particularly when it comes to things like what kind of notice the landlord must give of termination of the lease, when and why a landlord may withhold part or all of a deposit refund from a departing tenant, etc. There may be some landlord association groups that may help you with this stuff, too.

 

[adjusterjack]

This is my first experience with this and am wondering if I am missing anything?

Former landlord here. Don't ever put anything in your lease that you can't enforce. When I say can't enforce I really mean can't collect. Even if you win a judgment (which costs you money to get) the odds of actually collecting from a defaulting former tenant are slim to none.

If it was me, I'd say no and just allow for month to month for the additional $100 per month. At least, that way, you are $400 to $500 to the good if the tenant moves out in January.

The alternative is to get a non-refundable early termination fee up front, with the new lease, and the tenant can move out any time they want to.

In other words "Tenant, put your money where your mouth is." LOL.

I don't know if that's legal in CA. You'll have to figure that out.

 

[Zigner]

The alternative is to get a non-refundable early termination fee up front, with the new lease, and the tenant can move out any time they want to.

In other words "Tenant, put your money where your mouth is." LOL.

I don't know if that's legal in CA. You'll have to figure that out.

In CA, almost anything beyond the first month's rent that is collected "up front" is considered to be a deposit, and deposits are restricted to 2x monthly rent (or 3x if the unit is provided as a furnished unit). Since the OP probably already collected a deposit in the 1-2x range, adding more to the deposit (except to adjust it up for the increased rent) won't fly.

ETA: Also, deposits in CA can't be "non-refundable."

 

[Tax Counsel]

Former landlord here. Don't ever put anything in your lease that you can't enforce. When I say can't enforce I really mean can't collect.

That's not the right take. Put into the lease (1) every provision state law requires and (2) every provision that state law allows that will protect yourself in the event trouble arises. Putting in penalties, etc., to motivate things like timely payment of rent, for example, should always be in the lease. Even if you ultimately can't collect, at least you have the option to do so if the tenant has the assets. If you don't even put in the provision in the first place, you don't have that option.

Instead, if the tenant's financial situation is shaky enough that you are concerned whether the tenant will pay, don't offer the lease or, if the financial situation becomes shaky after the lease starts, refuse to renew the lease (if state law allows for that). There is the option of month to month. In most states that would be a good way to get rid of a troublesome tenant pretty quickly; but in CA it may not be so fast.