What is a Mutual Lease Termination Agreement?
A mutual lease termination agreement is just that: a mutual agreement between both the landlord and tenant to terminate the lease. By executing a mutual lease termination agreement, the tenant is able to end the lease prior to the lease expiration date agreed upon, without any potential negative ramifications to the landlord for terminating the lease early. Though normally we think of a lease termination as being a unilateral decision by the landlord or the tenant, in the case of a termination by mutual agreement, neither party has to be concerned that there will be penalties for early termination of the lease.
The goal of the mutual termination is to benefit each party with an early termination, such as a release of the security deposit to the tenant with the understanding that the tenant will move out. The landlord benefits by releasing a tenant that may be behind in paying rent or who is at risk of damaging the property. The tenant benefits from a mutual termination with the same benefits to the landlord.
When the relationship is working well, the parties will be able to understand what is expected of each party to the lease, eliminating the need to provide notice under the lease or providing notice to terminate the lease. Rather, by executing a mutual lease termination agreement, there won’t be any unexpected consequences to the lease and it allows each party to be assured that the terms and conditions of the lease will be respected, so you and the landlord can both know that the lease is terminated.
In many cases, an early termination of the lease is undertaken because the tenant is compelled to move , whether because the house, apartment or condo no longer meets their needs and they must move, or perhaps their financial situation has changed such that they are unable to pay for the lease such that the landlord has accelerated and demanded that the tenant leave.
Or perhaps the tenant wants to move just because they have found a better place to live, or they no longer like the landlord or the neighborhood. When a tenant does not wish to remain in the lease, they may look to negotiate an early termination to the lease.
For the landlord, they may not wish to litigate the issue if the tenant does not want to leave, and rather rather negotiate with the tenant with respect to a lease termination, especially if the tenant is a good tenant and you want to work things out.
As long as the parties agree, the lease will be terminated, and you will be able to obtain a rental from another tenant or place these premises on the market for sale. When the parties undertake an agreement to terminate, it is important to keep in mind your rights and obligations, just as if you did not want to renew the lease. As long as you adhere to your obligations under the lease and comply with your obligations to undertake an agreement with the landlord, you will be able to obtain a second opportunity to catch up on bills or save a few extra dollars until you are able to sign a new lease. Many landlords would rather allow a tenant a second chance than have the tenant move elsewhere, showing that the relationship is still strong. Also, it allows a second shot for the tenant, to maximize the security deposit and any additional security that the tenant may obtain.
Main Pieces of a Lease Termination Agreement to Include
Below are some important parts and components to include in your lease termination agreement. In either situation (unilateral or signed mutual agreement), be sure to have the agreement signed by all parties involved and include the date of termination.
Property address: Include the property address, including the city and state.
Lease term: The beginning and end date of the lease should be included in the termination agreement.
Date of termination: Be sure to include the date the lease will terminate and the property will be returned to the landlord.
Signature: Signatures of both the landlord and tenant are essential, and should be signed at the same time (ideally in the same place), as both parties are ending the lease agreement. If both parties will be present, it’s best to sign in ink.
Advantages of Using a PDF with Lease Termination
Mutual Lease Termination Agreements should be prepared as a PDF. The PDF format has many benefits for both landlord and tenant. PDF files are easy to use because they open with a free program installed on nearly every computer. In addition, the PDF format allows users to fill in many documents directly from their computers via Adobe Acrobat Reader or Adobe Acrobat. The PDF format’s security features also will help ensure the lease termination agreement is secure. PDF files can be password protected. You can also control the permissions settings for individuals sharing the file. For example, you may allow someone to only view the file, or you may allow someone to both print the file and make additional changes.
Another benefit to the PDF format for lease termination agreements is the ability to preserve the formatting of a document in a manner that Word Processing files cannot.
How To Create a Mutual Lease Termination Agreement
If you are looking for a straightforward way to prepare a mutual lease termination agreement, these six steps will guide you through each of the essential components required to create a legal document. These easy steps are:
Identifying the Parties: The first step of preparing this termination agreement should be identifying the name of the landlord and the name of the tenant. Identifying the Property: The next step of preparing a mutual lease termination agreement is to identify the address of the property or the description of the property being terminated. This may include the unit number, street address, city, county, and/or state of the premises that are being vacated. Stating the Reason: The termination agreement should include a reason for the termination. Although it is not required to state a reason , if one is given it should be clearly written in plain language for all parties to understand. Signatures: The agreement should be signed by all involved parties for the termination to be legal and binding. Date: The effective date of the termination should be part of the agreement to prevent any confusion about when the property will be vacated. Miscellaneous: You can add clauses to the termination agreement to cover damage, security deposit refund, and prorated rent damages if applicable.
A mutual lease termination agreement is generally used when both the landlord and tenant agree that the lease is to be terminated prior to the original expiration date. This could happen because the tenant bought a house and needs to move out of the rental unit, the tenant was hired for a job that required them to leave the area earlier than expected, the tenant is having financial difficulties, or the landlord needs the unit vacated to move in a family member.
Mistakes To Be Aware of with Lease Termination Agreements
A common mistake is failing to sign the agreement by all parties. It is critical that all parties sign the agreement for it to be enforceable. If one of the parties is a corporation, rather than an individual, it is important that the signatory has authority to execute the agreement on behalf of the corporation. Another mistake is entering into a lease termination agreement without docking rights to the subject property. When the lease ends so does the tenant’s right to occupy the space. Without this right to possession, the tenant would lose advantageous negotiating power—which might be needed to convince the landlord to forgive any outstanding rent or other obligations of the tenant in the lease agreement.
A frequently overlooked issue involves the creation of a lease termination agreement in a multi-tenant building. Lease agreements between landlords and tenants generally contain a provision requiring that the tenant pay its "proportionate share" of common area expenses. This means that the tenant is required to pay a portion of the costs of shared areas on the property (such as the parking lot and hallways). Typically, the portion is based upon the square footage of the tenant’s space. If a tenant vacates prior to the lease’s stated expiration date, its "proportionate share" of common area expenses may change each year as other tenants vacate and occupy more space. So, for example, if at the time the tenant vacates the rent is $800 per month and the portion of common area expenses is $200 per month, the landlord may see a significant drop in income ($1,200 per month) for the first months or years that the premises are vacant.
Where To Obtain a Useful Lease Termination Agreement PDF
If you are seeking a credible PDF template for a mutual lease termination agreement, looking at document assembly websites in your region is the first step you should take. For instance, websites such as eForms.com in the United States and LawDepot in Canada cater various different agreements and contracts complete with PDF templates. Be sure that the template you are reviewing is for the type of lease you carry. There may be slight variations from state to state in the US, so be certain that the template you are looking at is based on the laws in your state .
In the UK, Templates Document Store has a great PDF template for lease termination and in Australia, you can find a credible template on the Reiwa website. The paper trail legwork for finding a good PDF template will lie with your own research, however it is always recommended that you have a lease termination agreement reviewed by a lawyer prior to signing. It is important to know that creating and signing a mutual termination lease agreement does not automatically void a lease. Termination must be agreed to with the landlord and the tenant and a comprehensive signed recording of the cancellation should be compiled to protect all parties.