Contracts and agreements are necessary in the business world for a variety of reasons. First and foremost, they hold business accountable for their actions. A perfect world would allow a mans word to be all that was needed but with contracts, any kind of misstep can lead to a breach, which could trigger a lawsuit. Contracts are also used to protect a business, again in case of a lawsuit. And while businesses are being held accountable and protected, individual consumers are the ones who need to pay attention to contracts the most.
Anyone familiar with a rental agreement knows just how long that document can be. Including the terms of your rental arrangement, this document also includes sections that explain procedures, rights of the tenant and landlord and a variety of circumstances should problems arise. The few leases that I have signed over the years have all exceeded 20+ pages and that’s with very small type. Before signing them, I read every single word at least three times over to ensure I know the rules of the game. It’s important you do the same.
Two key terms every rental agreement includes are early termination fees and concessions. I’ve gotten to know these terms first hand, while helping a friend settle his debt with a previous tenant. Understanding them provides you the potential to save thousands in penalties.
Early Termination – A lease is a binding contract, good for the set term stated. So for example, if you sign a one year lease beginning January 1st 2011, you agree to make payments based on the payment arrangements written in the lease for one full year. Assuming your rent is owed monthly, 12 payments must be made in full and on time to avoid default of the lease. Should a renter decide to terminate the lease early, an early termination fee applies, generally in one of the following two ways:
- No matter when the lease is terminated, the renter agrees to pay the landlord for the full years worth of rent prior to vacating the premises. This means that even if a renter plans to leave in March, they owe a full year’s worth of rent. This option should NEVER be agreed to by a renter as thousands of dollars can be lost for a bad situation. Negotiate with the landlord if possible.
- Most rental agreements come with an early termination clause, which allows renters to pay two additional months of rent prior to vacation, regardless of how many months remain on the lease. This option allows the landlord ample time to find new tenants, while compensating them handsomely in the process. An early termination clause usually shows up as an addendum to any lease, so make sure it’s something you sign in addition to the standard lease.
Monthly Concessions – Sometimes, when signing a lease, a special deal is inserted to make the pot sweeter for the renter. When renting my apartment, I was able to knock $266 off the rent every month, in addition to paying a small security deposit of $99. It’s extremely important to note that monthly concessions are given ONLY if the lease is completed.
For example, let’s assume that I broke my lease four months early because of a new job opportunity. I may have thought that I can simply pay two months extra rent and call the case closed, but because of my concession, I probably have to pay more. Most landlords request the entire concession paid back if the lease is broken, so I would now be on the hook for an additional $2,660 ($266 concession, x 8 months I lived in the apartment and 2 additional months I owe for).
And if I can’t pay the concession fee back + early termination fee, my landlord will surely sue me for all four months rent I did not pay and the entire amount of the concession. This was the exact situation my friend fell into, but luckily, the landlord worked with us for a smaller settlement amount.
Even though no one plans to break a lease, sometimes it just happens and there’s nothing you can do about it. No doubt, the penalty will be higher than any tenant thinks they deserve to pay, but that risk is included when signing a lease. Make sure you take every precaution necessary and talk with the landlord prior to signing a lease. Two months rent owed is the industry standard, and you should settle for nothing less.