Fixed Term Leases

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Landlord and Tenant: Why fixed-term leases are best for tenants

Fixed-term leases offer tenants the most security.

Whereas a written monthly rental agreement favors the landlord, a fixed-term lease is often in the best interests of a tenant. First of all, a lease does give a tenant security. She knows that unless she gives the landlord good cause to evict her (such as ruining the apartment or not paying rent), she will have a place to live until the term expires. She also knows that her rent will not go up during that period.

Maybe best of all from the tenant’s perspective is that she can probably break the lease without repercussion, if need be. This gives her the security of a lease with the flexibility of a monthly rental agreement. That is a hard combination to beat.

Under normal circumstances, a tenant is obliged to pay the entire year’s worth of rent, even if she does not stay in the unit the entire time. That is the price one pays for the security that comes with a lease. If a tenant leaves with six months remaining on her lease, she is technically obliged to pay those six months of rent, with one very important caveat.

That is this: under contract law, landlords have a duty to try to rerent the unit as soon as is feasible. This is called mitigating one’s damages. A landlord must take reasonable steps to reduce any damage he may suffer as a result of a tenant’s breach of the lease. Renting the unit again in a reasonable amount of time to a qualified tenant would be a landlord’s mitigation. In the case of the tenant who leaves with six months left on the lease, if a landlord rented the place again in three months, then his actual monetary loss would only be the three months that the house was vacant. The tenant who moved early would be obliged to pay her landlord only for those three months.

Even more problematic for the landlord is that collecting that lost money is often difficult and not worth the time and expense it would take.

Alice signed a year-long lease with Stephen. She was to pay $500 a month in rent. Six months into the term, Alice was offered a better job in a different city and moved out. It took Stephen three months to rent the place again. Although Alice was legally obligated to pay Stephen $1,500 ($500 x the 3 months that the place was vacant), Stephen knew in reality that he would never see that money. Alice didn’t live there anymore. Stephen did not even know where to find her. Alice never paid the money and Stephen never even asked for it.

Leases are broken—that’s a fact—and most often by tenants. Tenants really have little to lose by breaking a lease. A sad but true fact is that tenants usually do not have much money. People without many assets are known to lawyers as “empty pockets.” No lawyer wants to sue an empty pocket. Accordingly, a landlord may not even go to the effort to sue over a broken lease, and even if he does, he may have a hard time collecting on any judgment he may eventually get.

Thus, not only is the landlord legally obliged to mitigate his losses when a tenant breaks a lease and moves early, but suing the tenant is usually not worth the landlord’s effort. Since most landlords know this, a tenant can usually break a lease without consequence, if need be.

Accordingly, a tenant should almost always get a lease if at all possible. It obligates the landlord, prevents him from raising rent, and stops him from terminating the agreement unless good cause exists. A lease gives a tenant security without, in reality, any of the anchors.

The Important Legal Concept to Remember: Rental agreements vary greatly. Landlords should usually try to get their tenants to enter into written rental agreements, and tenants should almost always try to get a lease.

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