Breaking a rental agreement can be expensive.
If you break your rental agreement (lease) before the end of the fixed term the rental provider stands to lose money, such as not getting the full value of the expenses they paid in renting the property to you, like advertising costs and, if they have an agent, letting fees. They could also lose money by not receiving all the rent they were expecting for the fixed-term period of your agreement.
That is why, if you break your agreement before the end of the fixed term, you may be asked to pay ‘lease break’ costs, to cover any reasonable losses the rental provider would otherwise incur.
The costs you could be asked to pay include:
- Compensation equal to the cost of the rent from the time you move out and a new renter moves in or until the end of the fixed term, whichever happens first
- Reletting fee – usually equal to one or two weeks’ rent. This must be based on the fee that the agent charged the rental provider for preparing your agreement, so ask for a copy of the invoice given to the rental provider at the time your agreement was prepared
- Reasonable advertising costs
Note: before agreeing to pay any costs we recommend you read the sections further down this page, on minimising costs and unreasonable costs.
Costs should be ‘pro-rata’
‘Lease break’ fees are intended to reimburse the rental provider for expenses they paid in renting the property to you that they now stand to lose out on because you are ending your agreement early.
Therefore, those expenses that you can be asked to reimburse only relate to the rental agreement you entered into. You should not be asked to pay any costs the rental provider paid to find a new renter or costs related to the new renter’s agreement.
As well, any costs you are asked to pay for should be worked out on a ‘pro-rata’ basis. This means that the part of the rental provider’s costs you are asked to reimburse should be equal to the time left on the agreement when you moved out as a proportion of the full fixed term. In other words, you can only be asked to pay the advertising or letting costs that cover the period you did not pay rent because you ended the agreement early.
For example, if you had a 12-month fixed-term agreement and ended your agreement 6 months early, you are renting for only half of the agreement. So, you should only be asked to pay half the advertising costs and letting fee the rental provider paid the agent for finding you and renting the property to you. You should not pay the full amount, nor should you pay any amounts relating to the next renter.
Please see the 2 detailed examples below on the costs you could be asked to pay if you are breaking your rental agreement.
Example – first fixed-term rental agreement
You moved into a new property under a 12-month fixed-term rental agreement, starting 1 January and ending 31 December.
The rental provider paid $240 in advertising costs to find you and a letting fee of $480 to their agent. The letting fee included the agent’s costs for showing the property to prospective renters, including yourself, and preparing the agreement.
In July you decided you wanted to move to a different property in an area that you liked better. You gave the rental provider more than a month’s written notice that you would end your rental agreement early and move out on 27 August.
A new renter was found and entered into a rental agreement to rent the property from 1 September. You paid the rental provider compensation equal to four days’ rent to cover the time the property was vacant, up to 31 August.
Because you moved out 4 months before the end of your fixed term the rental provider did not get the full value of the advertising and letting costs they spent for your rental agreement, so they can ask you to pay the proportion of these costs that match the proportion of the rental agreement left when you moved out.
Those costs are to be worked out on a ‘pro-rata’ basis, so they are only for the four-month period between 31 August and 31 December, when your fixed term agreement would have ended.
To work out how much you can be asked to pay for those four months calculate the monthly amount. Do this by dividing the amounts by 12 then multiplying the result by four.
Pro-rata advertising costs:
$240 ÷ 12 = $20 a month
$20 × 4 = $80 for 4 months
Pro-rata reletting fee:
$480 ÷ 12 = $40 a month
$40 × 4 = $160 for 4 months
The total pro-rata costs you can be asked to pay to cover the four months from 31 August until 31 December are:
$80 (advertising costs) + $160 (reletting fee) = $240
Example – second fixed-term rental agreement
You moved into a new property under a 12-month fixed-term rental agreement, starting 1 January 2020 and ending 31 December 2020.
At the end of your first fixed-term agreement you and the rental provider agreed to enter into a second fixed-term agreement starting 1 January 2021 and ending 31 December 2021.
The rental provider had paid $240 in advertising costs to find you and a letting fee of $480 to their agent for preparing the agreement for your first rental agreement. However, they did not have to pay any of these costs for your second rental agreement.
In August 2021, you decided you wanted to move to a different property in an area that you liked better. You gave the rental provider two weeks’ written notice that you would end your rental agreement early and move out on 31 August.
A new renter was found and entered into a rental agreement to rent the property from 15 September 2021.
Because the rental provider did not spend any money for advertising or letting fees for your second agreement they cannot ask you to pay any of those costs.
However, they can ask you to pay costs to cover the rent for the 14 days from the time you moved out, on 31 August 2021, and the time the new renter moved in, on 15 September 2021.
The monthly rent under the agreement was $1,200. To work out how much you need to pay for the 14 days between 31 August and 15 September calculate the daily rent amount. Do this by multiplying the monthly rent by 12 then dividing that amount by 365.
$1,200 × 12 = $14,400 yearly rent
$14,400 ÷ 365 = $39.45 daily rent
$39.45 × 14 days = $552.33
So, the total amount you pay is $552.33.
Consumer Affairs Victoria (CAV) has a rent calculator which can help you work out your daily rent amount.