What happens if a tenant wants to cancel a lease early?

There are plenty of reasons a tenant may want to end a lease early, from a new job in a new area to affordability issues etc. What every consumer needs to double check before signing a lease agreement, is that their lease makes provision for an early cancellation as per the Consumer Protection Act (CPA).

“This act is intended to protect the rights of both landlords and tenants,” says Jacqui Savage, National Rentals Manager for the Rawson Property Group. “In the case of early lease termination that means protecting tenants’ rights to end a lease agreement that no longer serves them, while also protecting landlords’ rights to maintain a secure and stable investment.” Exactly how this is accomplished remains a common source of confusion, however. These are the most frequent early cancellation questions that Savage receives from both landlords and tenants.

When can a tenant cancel a lease?

“Tenants are legally permitted to cancel their lease at any point, with 20 business days’ written notice” says Savage. “They may, however, have to pay a reasonable cancellation penalty for the privilege. The details of this penalty must be included in writing in the lease agreement and agreed to by all parties at the onset of the Lease Agreement.”

What is a “reasonable cancellation penalty”?

“The CPA is very clear that the early cancellation penalty may not be so high that it discourages tenants from enacting their right to cancel the lease agreement and it is therefore very important for tenants to read and understand their early cancellation penalty before signing a lease agreement”. While regulations don’t specify exactly what is considered “reasonable”, Savage says various factors need to be looked at to determine what will be a reasonable penalty, which could be determined by the remaining duration of the lease agreement, and also would it be easy to find a replacement tenant?

When does the early cancellation penalty not apply?

“Early cancellation penalties only come into effect once a tenant has vacated the premises and there is no longer rental income,” says Savage. “If a new tenant is placed immediately, and a new lease agreement signed for the same period or longer, there would be no financial loss due to vacancy, so that part of the cancellation penalty would fall away.”

The departing tenant may still be held liable for advertising costs or placement fees incurred in the process of finding the new tenant.