HomeReal EstateGuide To Early Termination Of Tenancy Agreement: How To Break Lease?
Early Termination Of Tenancy Agreement

Guide To Early Termination Of Tenancy Agreement: How To Break Lease?

1. Legal Ways To Terminate Your Tenancy Agreement Early

It is important to have termination or exit clauses in the Tenancy Agreement and to understand the terms and consequences before making any decision to terminate the tenancy agreement unilaterally.

Tenants should ask for early termination clauses in their lease agreements if they are likely to move out earlier.

For example if you are renting temporarily while waiting for your home to be built. You should ask for terms that allow you to terminate the lease earlier without incurring penalty if there is a possibility that you could move into your new home ahead of schedule.

A clause that lets you give three months’ notice if you need to leave earlier could save you from having to pay the remaining months of the lease.

This is especially crucial for those who are likely to move out earlier as a result of being deployed to work in another country by their company.

However do take note of the minimum rental period of 3 consecutive months for private properties and 6 months for HDB flats, which is stipulated by the respective authorities. 

There are common exit clauses drafted in the Tenancy Agreement that are straightforward such as the following:

1. The Diplomatic Clause

This clause is usually application for expatriates and can be activated after one year of continuous stay. In the event that the tenant is transferred out of the country by the company or is terminated by the company, the tenant is permitted to serve notice to the landlord to terminate the lease early. Do note that this must be supported with documentary evidence from the tenant’s employer. 

2. En-Bloc Clause

If the current development that you are staying in is undergoing a collective sale or has concluded a collective sale, you will have to follow the notice given by the developer or competent authority for the date of vacant possession. 

3. Damage or Destruction

For example if there is a fire that has caused severe damage to the flat leading it to be inhabitable, the tenancy agreement can be terminated. Such damages take time to repair and restore to a habitable condition and tenants cannot be left homeless. 

4. HDB Revokes or Withdraws Its Consent

For HDB flats, Landlords are required to submit an application to HDB for approval and they are required to update any changes in the tenants’ particulars or details. In the event of a policy change or breach in guidelines, HDB may decide to revoke or withdraw its consent for the rental. 

2. Breaking Lease Without The Above Clauses

What are your possible solutions should you decide to go ahead with an early termination of tenancy agreement other than for the above clauses? Without these clauses, you should discuss with your landlord to work out a fair and amicable solution for the early termination. 

Do understand the Landlord’s position as your early termination will result in a loss of income for their investment property and it typically takes time and effort to secure a suitable tenant. 

Explain your circumstances and seek the prior approval of the landlord to find a suitable tenant to take over and continue your lease. In this case, you may have to engage a real estate agent to assist in finding a tenant and at least for the same rent you are paying. Otherwise you may have to make up for the shortfall in rent until the end of the lease.

Do take note that you are required to return the property in a similar condition comparable to that at the commencement of the lease. So be prepared to furnish supporting documents that regular and timely aircon servicing was carried out, curtains were dry cleaned and the place was professionally cleaned. 

3. Can Landlords End The Tenancy Early?

While it is rare for Landlords to terminate the lease early, these are the three common reasons why they do so.

1. Failure to Pay Rent

If the monthly rent is unpaid or part of it is unpaid after a specified period after becoming due and payable, the Landlord may serve a written notice to the Tenant to terminate the lease.

2. Breach in Condition

If the Tenant is found to be in breach of any condition stated in the Tenancy Agreement and fails to remedy the breach within the stipulated period given by the Landlord

3. Change in Tenant’s Status

If there is any change to the immigration status or employment status of the Tenant and the Tenant is not allowed to lawfully reside in Singapore.

Should Landlords have to break the lease for other reasons, do consider a fair compensation for the Tenants as they have to incur costs and efforts to search for another suitable place. 

The Tenant is legally entitled to quiet enjoyment of the rented premises until the end of the lease term. If a wrongful termination takes place, the tenant could resort to pursuing a case with the Small Claims Tribunal if the lease does not exceed two years.

4. How To End A Tenancy Agreement

Ending a tenancy agreement typically involves several steps, which may vary depending on the terms outlined in the agreement and the laws and regulations of the jurisdiction where the property is located. Here’s a general guide:

  1. Review the Tenancy Agreement: Carefully read through the tenancy agreement to understand the terms and conditions related to ending the tenancy. Look for clauses specifying notice periods, conditions for termination, and any penalties for early termination.

  2. Give Notice: In most cases, tenants are required to give notice to the landlord or property management company of their intention to end the tenancy. The notice period can vary, but it’s often 30 to 60 days before the intended move-out date. Make sure to provide written notice as specified in the tenancy agreement.

  3. Arrange a Move-Out Inspection: Coordinate with the landlord or property manager to schedule a move-out inspection of the rental property. This inspection is typically conducted to assess the condition of the property and identify any damages beyond normal wear and tear.

  4. Prepare the Property: Clean the rental unit thoroughly and make any necessary repairs or replacements to ensure it’s in the same condition as when you moved in, aside from normal wear and tear. Remove all personal belongings and return any keys or access devices to the landlord or property manager.

  5. Settle Outstanding Obligations: Pay any outstanding rent, utilities, or other financial obligations specified in the tenancy agreement. Ensure that all payments are up to date to avoid any disputes or penalties.

  6. Receive Security Deposit: If you provided a security deposit at the beginning of the tenancy, arrange for its return according to the terms outlined in the tenancy agreement. The landlord may deduct costs for damages or outstanding payments from the security deposit before returning the remainder to you.

  7. Formally End the Tenancy: Once all obligations have been fulfilled and the move-out process is complete, both parties should sign a document acknowledging the end of the tenancy. This may include a termination agreement or a formal letter confirming the termination of the tenancy.

  8. Follow Legal Requirements: Be sure to comply with any legal requirements or regulations related to ending a tenancy in your jurisdiction. This may include providing specific forms or notices to the landlord or tenant authorities.

By following these steps and adhering to the terms of the tenancy agreement and local laws, you can effectively end a tenancy agreement in a smooth and orderly manner. It’s always advisable to communicate openly with the landlord or property manager throughout the process to avoid misunderstandings and ensure a positive transition for both parties.

5. Case Study: Tenants Left $400K Poorer After Unilateral Termination Of Tenancy Agreement

In this case, the tenants set up a restaurant in a rented three-storey shophouse in Little India. All seemed well until the tenants discovered that the highest floor, which housed some of their staff, had been built illegally.

They stopped paying rent, terminated the lease and sued the landlord for compensation. But this turned out to be the wrong move.

The High Court agreed that the tenants deserved compensation from the landlord, who had a duty to ensure that the property was safe and approved by the law. But it also ruled that the tenants were wrong to unilaterally end the lease as the restaurant on the first floor was unaffected by the case.

So the tenants who initiated the lawsuit against the landlord ended up being the losers as the compensation for the illegal floor was insufficient to offset the damages for wrongful termination of the restaurant lease.

They had to settle the unpaid rents and pay damages totalling more than $250,000, as well as $150,000 in legal costs, to the landlord after losing the case.

High Court Judge Vinodh Coomaraswamy’s ruling highlights three important obligations that govern tenancy agreements.

(i) Terms Of The Lease Agreement

The restaurant owners signed a four-year lease for the shophouse in December 2018: The first-floor unit housed the eatery and the second and third floors were used as residential units for the staff.

Goods and services tax is payable on the rent of commercial property such as restaurants, so there were two separate agreements – one for the restaurant and another for the residential space.

The monthly rent for the restaurant was $11,000 for the first two years and $12,000 for the last two years of the lease. A flat monthly rent of $6,000 was set for the two residential floors for the four years.

All was well until the tenants submitted their usage plan for the shophouse to the authorities for the usual approvals. It was then that the tenants and landlord discovered that the third floor had been built illegally.

No one knew who was responsible for the illegal structure; the third floor might have existed when the landlord bought the conserved shophouse in the Little India Historic District in November 1999.

When the extra floor was discovered, the authorities gave the landlord two choices – remove the illegal structure or engage qualified building professionals to restore it according to conservation rules.

But the tenants could not use the upper floors until the rectification work was done.

Although the tenancy agreement did not mention such a situation, Justice Coomaraswamy noted that the law would impute “an implied term” to the contract that the landlord would ensure that the two floors were constructed lawfully.

“I would have been prepared to find that there is an implied term in law in every tenancy agreement by which the landlord warrants to the tenant that every part of the premises demised under the tenancy agreement has been constructed lawfully,” he said.

The judge added that the landlord could not absolve himself by arguing that he did not know about the illegal structure or that he was not the one who built it.

(ii) Termination Of Tenancy Agreement

One must read a tenancy agreement carefully before signing it because there is usually a clause that requires tenants to make good all rent until the end of the lease if they terminate it unlawfully.

After the discovery of the illegal floor, the tenants stopped paying rent for the staff quarters in September 2019 and the restaurant rent in December 2019. They returned the keys to the landlord early in 2020.

Although two separate tenancy agreements were signed, the tenants argued that the deals should be viewed as a single transaction that had been affected by the illegal floor.

But Justice Coomaraswamy disagreed, noting that both the agreements had independent purposes. Even if the tenants were relieved of their obligation under the lease for the workers’ quarters, they could still continue with the lease for the restaurant as it was not affected by any building irregularities.

By ceasing to pay rent for their restaurant on the first floor, the tenants were found to have terminated this lease unlawfully.

This wrongful termination of tenancy agreement meant that the landlord was entitled to recover the lost rent from January 2020 to the end of the lease in November 2022. As the landlord found a new tenant to take over the space only from June 2022 due to the Covid-19 pandemic, the unpaid rent due was about $350,000.

(iii) Payment After Termination

Even when the lease is up, tenants cannot just move out without ensuring that the space they rented is not damaged and is restored to the condition when they first moved in.

Otherwise, landlords can impose reinstatement charges that are usually deducted from the tenants’ security deposit.

In this case, the landlord levied reinstatement charges of about $9,500 for the first-floor unit and about $35,000 for the workers’ quarters on the second floor, which was not illegally built.

The reinstatement cost of the second floor was substantial because the original timber flooring had been damaged by plywood planks laid over it by the tenants.

Although the tenants had filed a lawsuit asking for more than $700,000, claiming they had suffered losses due to the lease termination, the court ruled that they could not claim anything for the restaurant as its lease was ended prematurely.

So they got back about $146,000, which included their deposit and a rent refund for the staff quarters.

This amount was not enough to offset the $411,000 in damages they had to pay the landlord for the wrongful lease termination plus reinstatement charges.

In the end, they still had to pay the landlord about $265,000 after deducting what was due to them.

Most tenancy agreements come with terms requiring tenants to foot a landlord’s legal bills if a court rules that they are in the wrong.

But in this case, as the landlord was found to be in breach of the lease for the workers’ quarters, Justice Coomaraswamy ruled that the tenants had to meet only 70 per cent of the legal bill or about $150,000.

So the tenants had to pay about $415,000 in total to the landlord. They have since filed an appeal, which is pending.

When it comes to resolving disputes, it is sometimes better to negotiate a win-win settlement for both parties instead of suing each other in court at a huge expense.

(Source: The Straits Times)

6. Summary

At the end of the day, it is important for Landlords and Tenants to maintain open communication and be willing to resolve differences. 

If you are unable to come to a meeting of minds, do consult a lawyer for legal advice before taking matters into your own hands. This is to avoid any unnecessary legal costs and tussles further down the road. 

>>> For more Property Insights