One of the frustrating tasks of property management can be managing break lease situations. It is important that property managers understand the legislative requirements as set out in the Residential Tenancies and Rooming Accomodation Act 2008 (Qld) (RTRA Act) when dealing with break lease situations.

The Property Agents and Motor Dealers Act 2000 (Qld) sets out the legislative duty and requirements between a Real Estate Agent and a client (lessor). An agent can only represent one party in a real estate transaction. However, when it comes to a break lease situation, the agent walks a fine line as there is a legislative duty of the lessor (therefore the agent as well) to mitigate (reduce) a tenant’s loss in a break lease situation. This generally means that the lessor/agent must do all that they can to assist the tenant in a break lease situation to reduce any possible loss. When a tenant does break the lease they are responsible for the property (including cleaning and payment of rent etc) until such time as a new suitable approved tenant moves in, or the lease end, whichever comes first. Section 362 of the RTRA Act sets out the mitigation requirement;

362 Duty to mitigate loss or expense

(1) This section applies to the lessor if the lessor incurs loss or expense because of—

(a) the tenant’s failure to hand over vacant possession of the premises after a termination order is made by a tribunal; or

(b) the tenant’s abandonment of the premises; or

(c) another act or omission of the tenant.

(2) This section applies to the tenant if the tenant—

(a) incurs loss or expense because of an order made by a tribunal or registrar declaring that the tenant abandoned the premises on a stated day; and

(b) contends that the premises were not abandoned or were only abandoned on a day after the day stated.

(3) The lessor or tenant—

(a) must take all reasonable steps to mitigate the loss or expense; and

(b) is not entitled to receive compensation for any loss or expense that could have been avoided by taking the steps.

Section 173 of the RTRA Act sets out the legislative requirements of what a tenant can be charged when breaking their lease; 

173 Certain terms about penalties and other payments void

(1) A term of an agreement is void to the extent it provides that, if the tenant breaches the agreement or this or another Act, the tenant is liable to pay—

(a) all or a part of the rent remaining payable under the agreement; or

(b) increased rent; or

(c) an amount as a penalty; or

(d) an amount as liquidated damages

(2) Despite subsection(1), a term of a fixed term agreement is not void to the extent it provides that, if the tenant terminates the agreement other than in a way permitted under this Act, the tenant is liable to pay the reasonable costs incurred by the lessor in reletting the premises.

(3) Subsection (2) applies to a term only if the only reference in the term to the amount payable by the tenant is a reference to the reasonable costs incurred by the lessor in reletting the premises.

(4) A lessor or lessor’s agent must not require a tenant to enter into an agreement containing a term that is void under subsection (1).

Maximum penalty for subsection (4)—20 penalty units.

One of the sentences in the above provision is that the tenant can only be charged ‘reasonable costs associated with reletting the premises’. What is reasonable is not defined; however common industry practice has been to charge the letting commission (commonly called the let fee) plus GST. What is important to remember is that the tenant can only be charged what the lessor costs are; meaning the tenant is required to pay the reasonable costs incurred by the lessor. This may also include smoke alarm testing (if the lessor of course usually pays for this service by a third party) and advertising costs.

Another point which is important to consider, is that if this break lease matter ended up in Tribunal, some adjudicators and magistrates have considered in the past that charging a complete one week’s letting commission plus GST may not be reasonable especially if the tenancy has not got long left in the term duration. Such as a six month tenancy, and the tenancy lease is broken at the four month mark; some magistrates and adjudicators have encouraged the pro rata rate be charged instead of the whole amount as this is considered more reasonable given that the lessor client would be paying a complete reletting commission to the agency in two months time anyway. The pro rata rate chargeable to the tenant can be calculated at the weekly rent divided by the months; for example $300 per week divided by a six month term = $50 per month x 4 (if the lease is broken at the 4 month mark) = $200 plus GST as the reasonable cost to the tenant. Then upon reletting to a new tenant, the lessor is charged the remaining $100 plus GST. As stated above, in two months time, the lessor would have been charged the complete amount anyway.

The final best practice consideration is of course to ensure that the break lease agreement between the lessor/agent and tenant is set out in writing and clearly outlines the agreed reasonable costs and procedures. Also, ensure that all conversations are recorded in file notes (written or electronic).

One penalty unit equals $100. The legislation can be downloaded from www.legislation.qld.gov.au