what is termination of assignment of leases and rents

Assignment of Rents – What, Why, and How?

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• November 29, 2023

These days, almost all commercial loans include an Assignment of Rents as part of the Deed of Trust or Mortgage. But what is an Assignment of Rents, why is this such an important tool, and how are they enforced?

An Assignment of Rents (“AOR”) is used to grant the lender on a transaction a security interest in existing and future leases, rents, issues, or profits generated by the secured property, including cash proceeds, in the event a borrower defaults on their loan. The lender can use the AOR to step in and directly collect rental payments made by the tenant. For an AOR to be effective, the lender’s interest must be perfected, which has a few fairly simple requirements. The AOR must be in writing, executed by the borrower, and recorded with the county where the property is located. Including an AOR in the recorded Deed of Trust or Mortgage is the easiest and most common way to ensure the AOR meets these requirements should it ever need to be utilized.

When a borrower defaults, lenders can take advantage of AORs as an alternative to foreclosure to recoup their investment. With a shorter timeline and significantly lower costs, it is certainly an attractive option for lenders looking to get defaulted borrowers back on track with payments, without the potential of having to take back a property and attempting to either manage it or sell it in hopes of getting your money back out of the property. AORs can be a quick and easy way for the lender to get profits generated by the property with the goal of bringing the borrower out of default. But lenders should carefully monitor how much is owed versus how much has been collected. If the AOR generates enough funds so that the borrower is no longer in default, the lender must stop collecting rents generated by the property.

Enforcement of an AOR can also incentivize borrowers to work with the lender to formulate a plan, as many borrowers rely on rental income to cover expenses related to the property or their businesses. Borrowers are generally more willing to come to the table and negotiate a mutual, amicable resolution with the lender in order to protect their own investment. A word of warning to lenders though: since rental income is frequently used to pay expenses on the property, such as the property manager, maintenance, taxes, and other expenses, the lender needs to ensure they do not unintentionally hurt the value of the property by letting these important expenses fall behind. This may hurt the lender’s investment as well, as the property value could suffer, liens could be placed on the property, or the property may fall into disrepair if not properly maintained. It is also important for lenders to be aware of the statutes surrounding the payment of these expenses when an AOR is being used, as some state’s statutes require the lender to pay certain property expenses out of the collected rents if requested by the borrower.

In addition to being shorter and cheaper than foreclosure, AORs can be much easier to enforce. In California, the enforcement of an AOR is governed by California Civil Code §2938. This statute specifies enforcement methods lenders can use and restrictions on use of these funds by the lender, among other things. Under CA Civil Code §2938(c), there are 4 ways to enforce an AOR:

• The appointment of a receiver;
• Obtaining possession of the rents, issues, profits;
• Delivery to tenant of a written demand for turnover of rents, issues, and profits in the correct form; or
• Delivery to assignor of a written demand for the rents, issues, or profits.

One or more of these methods can be used to enforce an AOR. First, a receiver can be appointed by the court, and granted specific powers related to the AOR such as managing the property and collecting rents. They can have additional powers though; it just depends on what the court orders. This is not the simplest or easiest option as it requires court involvement, but this is used to enforce an AOR, especially when borrowers or tenants are uncooperative. Next is obtaining possession of the rents, issues, profits, which is exactly as it seems; lenders can simply obtain actual possession of these and apply the funds to the loan under their AOR.

The third and fourth options each require delivery of a written demand to certain parties, directing them to pay rent to the lender instead of to the landlord. Once the demand is made, the tenant pays their rent directly to the lender, who then applies the funds to the defaulted loan. These are both great pre-litigation options, with advantages over the first two enforcement methods since actual possession can be difficult to obtain and courts move slowly with high costs to litigate. The written demands require a specific form to follow called the “Demand To Pay Rent to Party Other Than Landlord”, as found at CA Civil Code §2938(k). There are other notice requirements to be followed here, so it is essential to consult with an experienced attorney if you are considering either of these options. California Civil Code §2938 specifically provides that none of the four enforcement methods violate California’s One Action Rule nor the Anti-Deficiency Rule, so lenders can confidently enforce their AORs using the above methods with peace of mind that they are not violating other California laws.

Whether you are looking to originate a new loan, or you are facing a default by your borrower, understanding what an Assignment of Rents is and how it operates can be extremely beneficial. Enforcing an AOR can be an easier option than foreclosure and can help promote a good relationship with your borrower when handled correctly. If you have any questions about AORs, or need further details on how to enforce them, Geraci is here to help.

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Assignment of Lease: How It Works and Parties Involved

Jump to section, what is an assignment of lease.

The assignment of lease is a title document that transfers all rights possessed by a lessee or tenant to a property to another party. The assignee takes the assignor’s place in the landlord-tenant relationship.

You can view an example of a lease assignment here .

How Lease Assignment Works

In cases where a tenant wants to or needs to get out of their lease before it expires, lease assignment provides a legal option to assign or transfer rights of the lease to someone else. For instance, if in a commercial lease a business leases a place for 12 months but the business moves or shuts down after 10 months, the person can transfer the lease to someone else through an assignment of the lease. In this case, they will not have to pay rent for the last two months as the new assigned tenant will be responsible for that.

However, before the original tenant can be released of any responsibilities associated with the lease, other requirements need to be satisfied. The landlord needs to consent to the lease transfer through a “License to Assign” document. It is crucial to complete this document before moving on to the assignment of lease as the landlord may refuse to approve the assignment.

Difference Between Assignment of Lease and Subletting

A transfer of the remaining interest in a lease, also known as assignment, is possible when implied rights to assign exist. Some leases do not allow assignment or sharing of possessions or property under a lease. An assignment ensures the complete transfer of the rights to the property from one tenant to another.

The assignor is no longer responsible for rent or utilities and other costs that they might have had under the lease. Here, the assignee becomes the tenant and takes over all responsibilities such as rent. However, unless the assignee is released of all liabilities by the landlord, they remain responsible if the new tenant defaults.

A sublease is a new lease agreement between the tenant (or the sublessor) and a third-party (or the sublessee) for a portion of the lease. The original lease agreement between the landlord and the sublessor (or original tenant) still remains in place. The original tenant still remains responsible for all duties set under the lease.

Here are some key differences between subletting and assigning a lease:

• Under a sublease, the original lease agreement still remains in place.
• The original tenant retains all responsibilities under a sublease agreement.
• A sublease can be for less than all of the property, such as for a room, general area, portion of the leased premises, etc.
• Subleasing can be for a portion of the lease term. For instance, a tenant can sublease the property for a month and then retain it after the third-party completes their month-long sublet.
• Since the sublease agreement is between the tenant and the third-party, rent is often negotiable, based on the term of the sublease and other circumstances.
• The third-party in a sublease agreement does not have a direct relationship with the landlord.
• The subtenant will need to seek consent of both the tenant and the landlord to make any repairs or changes to the property during their sublease.

Here is more on an assignment of lease here .

Parties Involved in Lease Assignment

There are three parties involved in a lease assignment – the landlord or owner of the property, the assignor and the assignee. The original lease agreement is between the landlord and the tenant, or the assignor. The lease agreement outlines the duties and responsibilities of both parties when it comes to renting the property. Now, when the tenant decides to assign the lease to a third-party, the third-party is known as the assignee. The assignee takes on the responsibilities laid under the original lease agreement between the assignor and the landlord. The landlord must consent to the assignment of the lease prior to the assignment.

For example, Jake is renting a commercial property for his business from Paul for two years beginning January 2013 up until January 2015. In January 2014, Jake suffers a financial crisis and has to close down his business to move to a different city. Jake doesn’t want to continue paying rent on the property as he will not be using it for a year left of the lease. Jake’s friend, John would soon be turning his digital business into a brick-and-mortar store. John has been looking for a space to kick start his venture. Jake can assign his space for the rest of the lease term to John through an assignment of lease. Jake will need to seek the approval of his landlord and then begin the assignment process. Here, Jake will be the assignor who transfers all his lease related duties and responsibilities to John, who will be the assignee.

You can read more on lease agreements here .

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Assignment of Lease From Seller to Buyer

In case of a residential property, a landlord can assign his leases to the new buyer of the building. The landlord will assign the right to collect rent to the buyer. This will allow the buyer to collect any and all rent from existing tenants in that property. This assignment can also include the assignment of security deposits, if the parties agree to it. This type of assignment provides protection to the buyer so they can collect rent on the property.

The assignment of a lease from the seller to a buyer also requires that all tenants are made aware of the sale of the property. The buyer-seller should give proper notice to the tenants along with a notice of assignment of lease signed by both the buyer and the seller. Tenants should also be informed about the contact information of the new landlord and the payment methods to be used to pay rent to the new landlord.

You can read more on buyer-seller lease assignments here .

Get Help with an Assignment of Lease

Do you have any questions about a lease assignment and want to speak to an expert? Post a project today on ContractsCounsel and receive bids from real estate lawyers who specialize in lease assignment.

ContractsCounsel is not a law firm, and this post should not be considered and does not contain legal advice. To ensure the information and advice in this post are correct, sufficient, and appropriate for your situation, please consult a licensed attorney. Also, using or accessing ContractsCounsel's site does not create an attorney-client relationship between you and ContractsCounsel.

Meet some of our Assignment of Lease Lawyers

Curt Brown has experience advising clients on a variety of franchising, business litigation, transactional, and securities law matters. Mr. Brown's accolades include: - Super Lawyers Rising Star - California Lawyer of the Year by The Daily Journal - Pro Bono Attorney of the Year the USC Public Interest Law Fund Curt started his legal career in the Los Angeles office of the prestigious firm of Irell & Manella LLP, where his practice focused on a wide variety of complex civil litigation matters, including securities litigation, antitrust, trademark, bankruptcy, and class action defense. Mr. Brown also has experience advising mergers and acquisitions and international companies concerning cyber liability and class action defense. He is admitted in California, Florida, D.C., Washington, Illinois, Colorado, and Michigan.

Shelia A. Huggins is a 20-year North Carolina licensed attorney, focusing primarily on business, contracts, arts and entertainment, social media, and internet law. She previously served on the Board of Visitors for the North Carolina Central University School of Business and the Board of Advisors for the Alamance Community College Small Business Center. Ms. Huggins has taught Business and Entertainment Law at North Carolina Central University’s law school and lectured on topics such as business formation, partnerships, independent contractor agreements, social media law, and employment law at workshops across the state. You can learn more about me here: www.sheliahugginslaw.com www.instagram.com/mslegalista www.youtube.com/mslegalista www.facebook.com/sheliahuugginslaw

Steven Stark has more than 35 years of experience in business and commercial law representing start-ups as well as large and small companies spanning a wide variety of industries. Steven has provided winning strategies, valuable advice, and highly effective counsel on legal issues in the areas of Business Entity Formation and Organization, Drafting Key Business Contracts, Trademark and Copyright Registration, Independent Contractor Relationships, and Website Compliance, including Terms and Privacy Policies. Steven has also served as General Counsel for companies providing software development, financial services, digital marketing, and eCommerce platforms. Steven’s tactical business and client focused approach to drafting contracts, polices and corporate documents results in favorable outcomes at a fraction of the typical legal cost to his clients. Steven received his Juris Doctor degree at New York Law School and his Bachelor of Business Administration degree at Hofstra University.

Morgan is a real estate attorney with six years of experience in residential, land, and commercial real estate transactions. He has experience assisting municipalities, businesses, buyers and sellers in real estate related matters. He has worked on various projects including purchase agreements, contract for deed, easements, mortgages, access agreements, contract/lease review and also title review. Prior to entering private practice, Morgan was a Realtor and assisted buyers and sellers in residential sales and closing services. Morgan provides proactive, responsive and dependable work to each client and project.

Bukhari Nuriddin is the Owner of The Nuriddin Law Company, P.C., in Atlanta, Georgia and an “Of Counsel” attorney with The Baig Firm specializing in Transactional Law and Wills, Trusts and Estates. He is an attorney at law and general counsel with extensive experience providing creative, elegant and practical solutions to the legal and policy challenges faced by entrepreneurs, family offices, and municipalities. During his legal careers he has worked with entrepreneurs from a wide array of industries to help them establish and grow their businesses and effectuate their transactional goals. He has helped establish family offices with millions of dollars in assets under management structure their estate plans and philanthropic endeavors. He recently completed a large disparity study for the City of Birmingham, Alabama that was designed to determine whether minority and women-owned businesses have an equal opportunity to participate in city contracting opportunities. He is a trusted advisor with significant knowledge and technical experience for structuring and finalizing a wide variety of complex commercial transactions, estate planning matters and public policy initiatives. Raised in Providence, Rhode Island, Bukhari graduated from Classical High School and attended Morehouse College and Howard University School of Law. Bukhari has two children with his wife, Tiffany, and they live in the Vinings area of Smyrna.

John has extensive leadership experience in various industries, including hospitality and event-based businesses, then co-founded a successful event bar company in 2016. As co-founder, John routinely negotiated agreements with venues, suppliers, and other external partners, swiftly reaching agreement while protecting the brand and strategic objectives of the company. He leverages his business experience to provide clients with strategic legal counsel and negotiates attractive terms.

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Assignment of Lease

Contract to lease land from a church?

I’m planning on leasing land from a church. Putting a gym on the property. And leasing it back to the school.

Ok; first step is that you will need a leasing contract with the church. Ask them to prepare one for you so you would just need an attorney to review the agreement and that should cost less than if you had to be the party to pay a lawyer to draft it from scratch. You need to ensure that the purpose of the lease is clearly stated - that you plan to put a gym on the land so that there are no issues if the church leadership changes. Step 2 - you will need a lease agreement with the school that your leasing it do (hopefully one that is similar to the original one your received from the church). Again, please ensure that all the terms that you discuss and agree to are in the document; including length of time, price and how to resolve disputes if you have one. I hope this is helpful. If you would like me to assist you further, you can contact me on Contracts Counsel and we can discuss a fee for my services. Regards, Donya Ramsay (Gordon)

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Assignment of leases and rents: absolutely collateral.

[caption id="attachment_25168" align="aligncenter" width="616"]

Jeffrey B. Steiner[/caption] Generally speaking, rents comprise the principal income derived from commercial real property ownership prior to the sale of the property. In traditional, non-recourse lending, where the special purpose entity borrower may become insolvent, lenders rely on the rent and related income from the property as security for the loan. One mechanism employed by commercial mortgage lenders to secure their interest in the rental stream is to require in the mortgage document an assignment of leases and rents pursuant to which the borrower ‘presently and absolutely’ assigns to the lender the rents from the real property. In turn, the lender grants the borrower a license, revocable upon an event of default, to collect and use the rents. Lenders have elected to include the language purporting to affect a “present” and “absolute” transfer with the hope of achieving the benefits of an “absolute” assignment of the rents over a “collateral” assignment. If the assignment is deemed to be an “absolute” transfer of legal title of the rents from the borrower to the lender, then such assignment would become enforceable immediately upon an event of default and revocation of borrower’s license to collect and use the rents—meaning, that the lender would have the right and ability to collect the rents directly from the tenants as soon as an event of default has occurred. By contrast, if the assignment is considered “collateral,” the lender runs the risk that, following an event of default and a resulting borrower bankruptcy, the rents will be deemed property of the bankruptcy estate, subject to a bankruptcy plan and protected by the Bankruptcy Code’s automatic stay. Case Law New York case law surrounding the treatment of assignments of leases and rents, whether by “absolute” or “collateral” assignment nominally suggests that judges will give effect to the intended purpose of these assignments, ignoring such “absolute” assignment language and interpreting the assignment as a “collateral” one for the mortgage loan. For this reason, a majority of New York state courts have ruled that lenders cannot create an absolute assignment of leases and rents in a mortgage transaction regardless of the language used. In Dream Team Assocs. v. Broadway City , 2003 N.Y. Slip Op 50894U, 2003 WL 21203342 (N.Y.Civ.Ct. May 7, 2003), for instance, the court addressed the question of whether an assignment of rents constitutes an absolute assignment and ruled that “[u]nder New York law…the language used in the assignment instrument itself is not determinative of what rights are actually transferred.” Relying on the fact that New York is a “lien theory” state rather than a “title theory” state, state courts typically hold that an assignment of leases and rents, regardless of the wording of the provision or form taken, will not be a present assignment when given as security for the loan. It follows then that, if assignments of rents do not serve to transfer immediate title to the rents, they instead transfer equitable title and constitute a pledge of the rents to which the lender cannot become entitled until taking some extra, affirmative enforcement steps. In In re Soho 25 Retail , No. ADV. 11-1286-SHL, 2011 WL 1333084, at *6–8 (Bankr. S.D.N.Y. March 31, 2011), the court sought to summarize certain potential steps to enforcement as follows: “requesting the appointment of a receiver to collect the rents, demanding or taking possession [of the property], commencing foreclosure proceedings, or seeking an order for the sequestration of rents.” These additional, affirmative steps do not seem onerous at first glance. However, as any mortgage lender will attest, the foreclosure process in New York State is slow. Furthermore, mortgage lenders are properly advised to avoid the exercise of any such rights prior to an appointment of a receiver or the consummation of foreclosure for fear of being found to be a mortgagee in possession, which could cause lenders to be deemed to have assumed all of the same duties and liabilities of the owner of the property. The rule was recently restated by the court in Allen v. Echeverria , 11 N.Y.S.3d 170, 173 (N.Y. App. Div. 2015), that is, a mortgagee who takes possession of the property mortgaged as collateral is “bound to employ the same care and supervision over the mortgaged premises that a reasonably prudent owner would exercise in relation to his own property; he is bound to make reasonable and needed repairs, and is responsible for any loss or damage occasioned by his willful default or gross neglect in this regard.” Most commercial mortgage lenders are not in the business of managing properties and do not want to be subject to the liability that could arise during such management, especially when the title to the property remains vested in an adverse party, i.e., its defaulted borrower. In light of the bankruptcy risks and the potential that an assignment of rents will not be deemed an absolute assignment, vigilant lenders will avail themselves of alternative mechanisms to exert control over the rents, namely, (i) cash management arrangements and (ii) guaranties that provide for liability in the event of a misappropriation of the rents. Through “lockbox” arrangements between the lender, the borrower and third-party banks, lenders will control the rents deposited by tenants directly into such lender-controlled clearing accounts. The rents will then be distributed according to the terms agreed upon by the parties at closing or otherwise at the direction of the lender in order to pay debt service and to accumulate reserves for the payment of property taxes and insurance. Borrowers will typically have no right to access these funds and, in all cases following an event of default, the banks will be prohibited from following any instructions received from borrowers. For loans in which lenders perceive greater risk, they can structure cash management to exercise greater control of the rents and to make less funds available to the borrower, decreasing the risk that rents will be misused. Additionally, loan documents always provide that, during an event of default, the rents deposited into the cash management accounts will be deemed to be additional collateral for the loan and may be applied by the lender to pay down the debt in lender’s sole discretion. Lenders may also protect against the misuse of rents by including a carve-out to the non-recourse nature of the mortgage loan in a guaranty executed by a borrower-affiliated person or entity. In such a guaranty, the guarantor will be liable to the lender to the extent of any loss suffered by the lender due to the misapplication or misappropriation of rents by the borrower or its affiliates.

Mortgage lenders should not rely on assignments of leases and rents, whether as a clause in the mortgage or as a separate agreement, to protect their interests in the income from their collateral prior to the appointment of a receiver or the final sale of the property at foreclosure. The enforcement of these agreements may take considerable time and money before the lender even gains a legal right to collect rents. Lenders should account for these risks by taking other legal measures which grant them greater control and actually give them enforceable rights immediately upon default. Jeffrey B. Steiner is a member of DLA Piper. Shane Goodhue, a law clerk (assoc.) at the firm, assisted in the preparation of this article.

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• What is an assignment of rents?

by Brian D. Moreno, Esq., CCAL | General Real Estate Law , Homeowners Association

With the collection of assessments, community associations are always looking for creative ways to increase the chance of recovery.  One underutilized remedy that may provide associations good results is an assignment of rents.  If an owner-landlord fails to pay HOA assessments but continues to collect rent payments from his or her tenant, the association should consider rent assignment.  There are prejudgment and post-judgment rent assignment remedies that can be pursued with regard to the delinquency.  A post-judgment rent assignment can be pursued by way of a request to the court after a Judgment is entered against the owner-landlord.

A prejudgment rent assignment can be pursued even before filing a lawsuit if executed properly.  In California, Civil Code Section 2938 regulates the formation and enforcement of the assignment of rents and profits generated by a lease agreement relating to real property.  It provides that “[a] written assignment of an interest in leases, rents, issues, or profits of real property made in connection with an obligation secured by real property. . .shall, upon execution and delivery by the assignor, be effective to create a present security interest in existing and future leases, rents, issues, or profits of that real property. . . .”   Once a written assignment of rents is properly authorized and formed, the law creates a security interest (i.e., lien) against the rents and profits paid by a tenant. 

The question then is whether the association’s CC&Rs, by itself, creates an assignment of the right to a tenant’s rent payment in favor of the association.  Indeed, section 2938(b) provides that the assignment of an interest in leases or rent of real property may be recorded in the same manner as any other conveyance of an interest in real property, whether the assignment is in a separate document or part of a mortgage or deed of trust.  Since a homeowners association’s CC&Rs is a recorded document and contains covenants, equitable servitudes, easements, and other property interests against the development, it follows that the assignment of rents relief provided in Section 2938(b) can be extended to community associations provided the CC&Rs contains an appropriate assignment of rents provision.

Section 2938, however, does not clarify whether the CC&Rs document on its own creates a lien and enforceable assignment right.  Moreover, a deed of trust is much different than a set of CC&Rs, in that the deed of trust creates a lien against the trustor’s property upon recordation, while a homeowners association would not have a lien until an owner becomes delinquent with his or her assessments and the association records an assessment lien against the property.  Therefore, depending on the scope of the assignment of rents provision in the CC&Rs, a homeowners association would likely need to record an assessment lien first before pursuing rents from a tenant.  Moreover, even after a lien is recorded, homeowners associations should consider adding a provision in the assessment lien giving notice to the delinquent owner that an assignment right is in effect upon recordation of the assessment lien.  Nevertheless, association Boards should consult with legal counsel to ensure proper compliance with the law.

Once the assignment right becomes enforceable, the next issue is how the Association can and should proceed.  Section 2938(c)(3) allows the association to serve a pre-lawsuit demand (a sample of which is included in the statute) on the tenant(s), demanding that the tenant(s) turn over all rent payments to the association.  This can be a powerful tool for homeowners associations.  Moreover, if the tenant complies, the association will receive substantial monthly payments that can be applied towards the assessment debt, and collecting the funds does not appear to preclude the association from pursuing judicial or non-judicial foreclosure proceedings at a later time.

While homeowner associations have the option of pursuing a lawsuit against the delinquent owner and seeking to collect the rent payments after a judgment has been obtained, there are obvious advantages to enforcing the assignment of rents provision prior to pursuing litigation.  A pre-lawsuit assignment of rents demand may prove to be more effective and cheaper.  Additionally, the tenant affected by the assignment of rents demand may place additional pressures on the delinquent owner/landlord having received such a demand.  Given this, the options available pursuant to Section 2938, including the pre-lawsuit demand for rents, should at least be considered and analyzed before action is taken.

Truly, the initial pre-lawsuit demand for rents may persuade the landlord-owner to resolve the delinquency with the association in the face of the potential disturbance of the landlord-tenant relationship.  Even if the tenant fails to comply with the demand and/or the owner fails to bring the account current, the association could nonetheless pursue foreclosure remedies and/or seek to have a receiver appointed to specifically enforce the assignment of rents provision.

In sum, if a delinquent homeowner is leasing the property to a tenant, the homeowners association should consider making a pre-lawsuit demand for rent payments.  If the association’s CC&Rs does not contain an assignment of rents provision, the board of directors should consider amending the CC&Rs to include an appropriate provision.  Without question, the pre-lawsuit demand for rents could provide an excellent opportunity for recovery of unpaid assessments during these difficult economic times.

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Termination of a Lease

Use this guide to learn how to terminate a lease and when a lease termination may not be allowed.

In this article:

• What is lease termination?

How to terminate a lease

Reasons a landlord cannot terminate a lease.

• Can a landlord terminate a lease early?

How to get your property ready to rent again

Whether your lease is month-to-month or for a fixed term, the termination of a lease generally requires some type of action on the part of the landlord — even if there’s a set end date. When it’s time to end a tenancy, you need to know the proper ways to terminate a lease and how far in advance you’re required to provide your tenant with the notice of termination .

What is lease termination ?

The termination of a lease agreement happens when a landlord or tenant ends the tenancy. Here are some common reasons for lease terminations :

End of term

Most fixed-term leases do not automatically renew, but you typically still need to send a termination letter . In some cases, a fixed-term lease will automatically renew — similar to a month-to-month lease. The main differences between these leases are their end dates.

A fixed-term lease has a set end date, typically after six months to one year.

A month-to-month lease automatically renews each month until it’s terminated.

Lease violation

Another reason for terminating a lease is if the tenant fails to uphold their rental obligations. A tenant may default on their lease in a number of ways, including:

• Incurring multiple disturbance complaints
• Breaking a no-pet policy ( service animals are not considered pets)
• Failing to maintain the rental in a clean and livable state
• Housing additional adult occupants in the rental who are not named on the lease
• Using the property for illegal purposes
• Not paying rent or paying rent late

Breaking a lease early

In many situations, this type of lease termination is considered a violation of the lease. However, in some circumstances, a tenant may have a valid request to break a lease early , including when:

• The tenant receives orders to move or deploy for military duty.
• The landlord neglects to provide safe and livable conditions for the tenant.
• The tenant is a survivor of domestic violence (laws around this may vary by state).

It’s important to know the rules for breaking a lease in your location — why a tenant may break a lease early and the amount of notice they must give. It’s a good idea to consult with a local lawyer to learn when and under what circumstances a tenant is permitted to end a lease early.

The full process for terminating a lease may vary based on its terms, applicable local laws and the circumstances for the lease termination . Here are some general steps for how to terminate a lease :

1. Review your lease agreement

The lease agreement will usually contain a clause that specifies when you or your tenant may terminate the lease — along with how much notice must be provided. Check your lease agreement to determine what actions must be taken before you may terminate the tenancy.

Need to create a lease? Zillow Rental Manager offers free, reusable leases in select locations, which can be customized and signed online. Each lease takes into account the applicable landlord-tenant laws for your area.

2. Notify the tenant

As a landlord, you are generally required to provide notice of the termination of tenancy . The type of notice — and the notice period — may vary depending on circumstances and local laws. Here are different types of lease terminations and their common notification periods:

End-of-lease notice: Common notice periods for end-of-term lease termination include 30, 60 and 90 days. Consult the lease and a local attorney to find the required notice period in your area and send your lease termination letter accordingly.

Lease violation notice: If the tenant violates the terms of the lease, you may be required to provide a lease violation notice and give the tenant a chance to correct the violation. If they fail to correct it in the allotted time (typically between 3 and 30 days, depending on local laws), you may be able to issue a notice to quit or have the right to begin the eviction process. Always consult a local attorney before initiating any eviction process against a tenant. 

30-day notice to landlord: If a tenant wants to end the lease early, they are typically required to provide you with a written request that details the reason for breaking the lease . Local laws may vary, but generally the tenant must provide at least 30 days’ notice.

3. Complete a move-out inspection

When it’s time for a tenant to move out, it’s good to do a final walkthrough inspection using the move-in checklist to flag any new damage or needed maintenance. This will help you determine if any portion of the tenant’s security deposit will need to be used for cleaning or repairs.

4. Collect the keys

Once your tenant moves out, you’ll want to collect the keys to the rental, including:

• Mailbox keys
• Common area keys
• Garage door openers
• Any copies of the keys made by the tenant

It’s a good practice to change all locks and passcodes between tenancies for your next tenant’s safety.

5. Refund the security deposit

The amount of time you have to return the security deposit will vary based on local law, but the countdown generally starts once the tenant moves out. Your lease should specify the situations when you can retain part or all of the security deposit. Generally, you may only use a security deposit to pay for:

• Recovering any past-due rent
• Fixing damage to the property that exceeds normal wear and tear
• Removing abandoned property
• Paying penalty for early termination of a lease
• Covering unpaid utilities

Typically, a landlord may not terminate a lease unless the lease duration is up or the tenant violates the terms of the lease. Generally, terminating a lease for discriminatory or retaliatory reasons is never acceptable. Local laws and lease terms will vary, but typically landlords cannot terminate a lease for the following reasons:

• You want to rent to someone else during the tenancy.
• You don’t want to rent the property anymore during the tenancy.
• You want to raise the rent outside the terms of the lease.
• You want to change certain lease terms during the tenancy.

Can a landlord terminate a lease early ?

Depending on your lease terms and local laws, you may be able to terminate a lease early under certain circumstances such as lease violations or if you decide to sell the property. Your lease agreement should spell out all instances where you are allowed to terminate the lease early, and it’s a good idea to work with a local lawyer to ensure you’re complying with applicable laws.

If you’re planning on renting your property again , here are some things you may want to do before showing the property to prospective tenants:

• Schedule professional services to make any needed repairs.
• Install necessary items like lightbulbs or blinds.
• Clean up the yard by mowing grass, raking leaves and pruning overgrown plants.
• Wash the windows and repair any torn screens.
• Change the air filters.

For more articles, tips and tools for landlords, visit our  Rentals Resource Center .

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To Terminate or Not to Terminate: Alternative Lease Remedies and When to Use Them

Most commercial real estate leases afford the landlord multiple remedies to address a tenant’s default. Frequently, such remedies are cumulative, as the landlord may pursue concurrent options. However, two of the most common remedies — termination of the lease or termination of the tenant’s right of possession without terminating the lease — are mutually exclusive.

Termination of the Tenant’s Right of Possession

If a commercial lease allows the landlord to terminate the tenant’s right of possession without terminating the lease, the tenant will remain liable for future rents that accrue under the lease — to the extent the landlord is unable to mitigate those damages — even though the tenant will lose the right to occupy the premises. When the landlord elects to exercise this remedy, it may commence a dispossessory action in which it will seek to recover possession and rents owed through the date of judgment. Additionally, even after the sheriff’s deputy returns possession of the premises to the landlord, the landlord may file serial suits to recover accrued rent.

Terminating the Lease

In contrast, when a landlord elects to terminate the lease, the tenant will owe the landlord no further obligation once the landlord recovers possession of the premises. If a tenant refuses to vacate the space following receipt of a termination notice, the tenant will remain liable for all rents (at the holdover rental rate, if applicable) through the date on which it departs the premises. From that point forward, however, the landlord will be unable to recover future rents from the departed tenant.

As a Commercial Landlord, Why Would I Ever Terminate the Lease if I Can Simply Terminate the Tenant’s Right of Possession?

To be sure, there is a material downside to terminating a commercial lease: lost future rents. As noted above, upon recovering possession of the premises following termination, the landlord has forfeited the right to seek additional rents. Considering that it may take several months (or longer) to locate a replacement tenant, renovate the premises for the new tenant’s needs, and begin collecting rent, it makes sense that the landlord would seek to prolong the former tenant’s liability for as long as possible as a means of mitigating damages. It is also worth mentioning that, even if a landlord terminates a tenant’s right of possession, it may also later elect to terminate the lease.

However, there are several instances in which a landlord may wish to terminate the lease, notwithstanding the fact that doing so will cap the tenant’s financial liability.

First, suppose the landlord is desperate to recapture the space. Maybe the current tenant’s rent is well below the market rate, and the landlord could easily rent the space to a new tenant at a higher rate. Or maybe the current tenant’s use, though lawful, has become a nuisance. In these situations, the landlord may decide that it would be best to part ways with the offending tenant. In that case, when the opportunity to terminate presents itself, the landlord should take full advantage.

Two of the grounds for eviction are (1) non-payment of rent; and (2) holding over in the premises following the expiration or termination of the lease. The option the landlord elects to use can be critical. In Georgia, if a landlord seeks to evict due to non-payment of rent, the tenant still has an opportunity to create a complete defense by curing its monetary default and paying the cost of the dispossessory warrant within seven days of service (though the tenant can only avail itself of this defense once in any 12-month period). In contrast, if the landlord seeks to evict the tenant for holding over following the expiration or termination of the lease, the tenant does not have the right to cure its default, even if the basis for termination was non-payment of rent . Thus, an eviction action based on the same underlying default — the non-payment of rent — can have significantly different outcomes, depending on whether the landlord elects to terminate the tenant’s right of possession (in which case the tenant may still have an opportunity to cure its default) or terminate the lease altogether (in which case the tenant has no such right).

A second important scenario in which a landlord may elect to terminate the lease instead of terminating just the tenant’s right of possession involves a potential tenant bankruptcy. Once a tenant files for bankruptcy protection, all its assets — including any valid leases — become property of the debtor estate. In the case of a commercial lease, the tenant debtor can elect to reject the lease, assume the lease, or assume and assign the lease, and it will have several months or longer to make its election. Because bankruptcy laws are debtor friendly, a landlord whose lease becomes an asset of the debtor estate loses significant control.

If a landlord suspects that its tenant may file for bankruptcy protection, and if the landlord wants to avoid the lease becoming tied up in bankruptcy proceedings, the landlord should move swiftly to terminate the lease before the tenant files its bankruptcy petition. If the tenant has no lease as of the petition date, it has nothing to assume or assign. Many landlords in these circumstances would gladly forgo the opportunity to collect future rents to avoid becoming embroiled in protracted bankruptcy matters.

Understand Your Remedies

Most leases contain the two competing remedies of terminating the lease or terminating the tenant’s right of possession only. In the abstract, neither option is better or worse than the other. Rather, electing the proper remedy requires an understanding of the advantages and disadvantages of each option and an evaluation of the relevant circumstances that impact the landlord’s decision.

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Can Landlords Break a Lease?

August 20, 2024

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Are Landlords Allowed to Terminate Leases Early?  

Though it may not be ideal, especially for a tenant, there are instances when a landlord may want or need to pursue early termination of an existing lease. If done correctly, you as a landlord have the right to do this, but first you should gather information on your rights, your tenant’s rights, and the best steps to follow when breaking a lease so you don’t end up in a sticky legal situation.  

Reasons Why a Landlord May Break a Lease  

There are a few reasons you might want to end a lease with a tenant, but can a landlord break a lease for any reason they want? No, and you shouldn’t. Local laws dictate what causes are acceptable for a landlord to terminate a lease, and while they may differ from region to region, there are usually a few standard reasons a landlord is allowed to terminate a lease early. Reasons outside these must be disclosed clearly in a termination clause found in the lease agreement.

1. Rent Nonpayment or Other Lease Violations

Every once in a while, a tenant might make an honest mistake and pay their rent a day or two late. No one is perfect! Others, though, may stop paying you altogether, even after several reminders, and this lease violation is grounds for eviction. Similarly, tenants may commit other lease violations, such as hiding a pet or extra roommate or extensively damaging the property. When a tenant violates the lease agreement by consistently failing to pay rent or follow its terms, it is grounds for eviction.  

As a landlord, you’re owed payment for the property you’re offering a tenant as well as respect for the space. If a tenant is violating the agreed-upon terms of the lease, you gain the right to terminate it. It’s a good idea, though, to talk to your tenant first about the issues to see if they can be resolved without taking more drastic measures.  

If you end up deciding to break a lease, make sure to check your local landlord-tenant laws before taking action — look for specifics on issues like grace periods for rent or a “cure” period a tenant is provided to correct a lease violation after receiving an eviction notice.

2. Ending the Lease Before it Begins

Another reason a landlord might want to break a lease is an extenuating circumstance that occurs before the lease even starts, like the landlord deciding to sell the property (more on that later), wanting to live in it longer, or needing extra time to complete repairs or renovations. This can either lead to the landlord wanting to push back the lease start date or end it completely, which can become a hassle for all parties.  

Since leases are legally binding for both the tenant and the landlord, a tenant must also agree, through a written agreement, to break the lease; otherwise, the tenancy must move forward as originally agreed upon. If both the tenant and the landlord cannot come to a solution, it may be best to discuss your options with a lawyer.

3. Sale of Property

As mentioned above, a landlord may want to break a lease to sell the property to someone else. This can sometimes be a cause for ending a rental agreement early, but in this scenario, it doesn’t necessarily have to come to that.This can sometimes be a cause for ending a lease early, but in this scenario, it doesn’t necessarily have to come to that.  

The easiest way to mitigate issues in this instance is to include clauses in your lease for what should happen if the property is sold. Some landlords choose to include a clause that states that either party can terminate the lease for any reason with reasonable notice (usually around 30 to 60 days ). Others may decide to transfer a lease to the buyer of the home, making the new owner the landlord for the same tenant.  

No matter the decision you make, you should communicate to your tenant that you plan on selling the property. That way, tenants will have ample time to secure new housing (or prepare for a new landlord) before the sale takes place. 

4. Extensive Renovations, Repairs, or Other Improvements

Can a landlord break a lease due to renovations? Yes, especially when these renovations are long-term or involve needing full access to the property. When a landlord is renovating, repairing, or otherwise improving their units, it’s common for things to go wrong or for projects to take longer than originally anticipated. This poses a problem when renovations conflict with a lease’s start date.   

You, as a landlord or property manager, are responsible for providing a safe, habitable space for your tenants that meets health and safety standards. If, for example, you’re knocking down a wall or repairing pipe issues on the property, the unit may not be habitable for a renter.   

If your renovations will take a long time, perhaps months, it’s advisable to make your tenants aware in advance so they have time to look for new housing.  

Understanding the Process of Breaking a Lease  

The process of breaking a lease can vary at both the state and local levels. Not only is it important for landlords to understand the specific conditions under which they can terminate a lease agreement, but also the laws of their state about the process of early termination.  

Below is an example of Ohio’s state laws for lease termination with cause (the tenant violated the lease in some way, like not paying rent on time):  

• Provide written notice of the lease’s end with proper notice  
• For a rent demand notice, 3 days to pay or quit (must be sent by certified mail)  
• For a notice of lease violation, 30 days to cure or quit  
• For unconditional notice to quit, 3 days to quit  
• Deliver this notice to the tenant following the preferred delivery method outlined in the lease (or by certified mail if the notice is a rent demand)  
• Share the reason for ending the lease early  

Here are Ohio’s state laws for lease termination without cause (i.e. selling the property, renovations , etc.):  

• Provide written notice of the lease’s end with proper notice (the amount of advanced notice required depends on the type of tenancy: week-to-week requires seven days, month-to-month requires 30 days)  
•  Deliver this notice to the tenant following the preferred delivery method outlined in the lease, usually in person or by mail  
• Share your reason for ending the lease early  
• Tenants can break a lease as well for reasons such as active military service, domestic violence, or uninhabitable living conditions  

The Rights of Tenants When a Lease Ends Early  

It’s important to remember that tenants have rights when a lease is terminated, and if you don’t follow your state and local laws, you could be sued by your tenant for damages, partial rent payments, or the right to stay in the property for the full term of the lease.  

Generally, tenants can contest or object to the lease termination for reasons like these below:  

• Insufficient or incorrect notice  
• Harassment or discrimination  
• Failing to keep the property habitable and safe  
• Insufficient time to fix the issue  
• Handling improperly or damaging their personal property  

Remember that tenants also have the right to terminate their leases early under specific circumstances. For example, under the Servicemembers Civil Relief Act (read more about this law here ), tenants who are active military members have the right to terminate their lease early if they receive deployment orders.  

To avoid a lawsuit, communicate professionally with your tenants and keep records of rental documents and conversations. This will not only keep you organized but will protect you from issues in court if the situation reaches that point.  

Making the Right Decision for Your Property  

At the end of the day, the choices you make for your property are up to you. It’s always preferred to honor a lease, but sometimes situations come up that get in the way — and that’s okay! We recommend researching your local laws or consulting with a real estate attorney before making decisions (other invaluable resources include information provided by trusted sources like the American Apartment Owners Association). If you follow the correct legal processes to terminate a lease early , you’ll be able to end it in most cases and move forward with your unit.  

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Legal Templates

Home Lease Agreement Commercial Restaurant

Restaurant Lease Agreement Template

Use our Restaurant Lease Agreement template to effortlessly lease out your restaurant space to tenants or culinary professionals.

Updated August 19, 2024 Written by Yassin Qanbar | Reviewed by Susan Chai, Esq.

A restaurant lease agreement is a legally binding contract between a landlord and a tenant, specifically tailored for leasing a commercial property intended to be used as a restaurant. This agreement outlines the terms and conditions of the lease, including the duration, rent amount, responsibilities of both parties and specific requirements related to operating a restaurant.

How to Rent a Restaurant

Essential sections in restaurant leases, sample restaurant lease agreement, when to use.

If you own a commercial property that you plan to lease to a tenant who will run a restaurant or are looking to lease a commercial property from a landlord for use as a restaurant.

Step 1 – Identify the Ideal Location

• Demographics : Analyze the population, age, income levels, and dining habits of the area.
• Foot Traffic : Ensure the location has high foot traffic, especially during meal times.
• Accessibility : Consider parking availability and ease of access for both customers and suppliers.

Step 2 – Conduct a Site Analysis

• Condition of the Premises : Inspect the kitchen facilities, dining areas, restrooms, and storage spaces. Look for any necessary repairs or upgrades.
• Compliance with Codes : Ensure the space complies with local health, safety, and fire codes. This may require consulting with a professional.

When drafting your Restaurant Business Plan , it’s crucial to integrate insights from your site analysis to align operational and financial planning.

Step 3 – Negotiate Lease Terms

• Length of Lease : Decide on a lease term that balances stability with flexibility. Short-term leases offer flexibility but may lead to higher costs if the business succeeds.
• Rent Escalations : Understand how and when rent increases will occur. Negotiate a cap on annual increases.
• Tenant Improvements : Discuss who will pay for necessary improvements and how they will be completed.

Step 4 – Understand Additional Costs

• Common Area Maintenance (CAM) : Costs associated with maintaining shared spaces in a commercial building.
• Utilities : Determine responsibility for utilities like water, electricity, and gas.
• Insurance : Ensure you have adequate property and liability insurance, often required by the landlord.

Step 5 – Secure Necessary Permits and Licenses

• Food Facility Health Permit: Required to ensure your kitchen meets health and sanitation standards.
• Liquor License : Necessary if you plan to serve alcohol.
• Food Service License: Need to safely handle, prepare, sell, and serve food.
• Business License : A general license to operate your business legally.

Step 6 – Plan for Build-Outs

• Design and Layout : Plan the restaurant’s layout, including the kitchen, dining area, and storage. Consider hiring a professional designer.
• Construction and Renovation : Work with contractors to ensure the build-out meets your specifications and local regulations. Before the renovation, the landlord would have to approve the build-out.

Step 7 – Review the Lease Agreement

• Legal Consultation : Have an attorney review the lease agreement to ensure it is fair and protects your interests.
• Exit Clauses : Understand the conditions under which you can terminate the lease early.

Step 8 – Finalize the Deal

• Sign the Lease : Once all terms are agreed upon, sign the lease and keep a copy for your records.
• Move In and Set Up : Begin setting up your restaurant space, installing equipment, and arranging furnishings.

Regulatory Agencies

For local laws, contact your regional health department for assistance; they can provide a step-by-step guide for your city’s requirements. Various regulatory agencies oversee broader restaurant rules:

• Occupational Safety and Health Administration (OSHA) : Oversees employees’ health and safety regulations.
• USDA Food Safety and Inspection Service (FSIS) : Oversees the commercial supply of meat, poultry, and processed egg products.
• Food and Drug Administration (FDA) : Ensures the safety of foods (other than meat, poultry, and eggs) and provides food service codes and regulations for each state.

Rent and Rent Structure

• Base Rent: Determine the base rent and any percentage rent based on gross sales.
• Rent Escalations: Outline how rent increases will be calculated and implemented.
• Permitted Use: Clearly define the specific use of the property, ensuring it aligns with your business model.
• Exclusive Use: Negotiate for exclusive use rights to prevent the landlord from leasing adjacent spaces to direct competitors.

Improvements and Alterations

• Tenant Improvements: Specify what improvements are allowed and who bears the cost.
• Approval Process: Detail the approval process for any alterations or renovations.

Maintenance and Repairs

• Landlord Responsibilities: Outline the landlord’s obligations for maintaining the building structure and common areas.
• Tenant Responsibilities: Define the tenant’s duties for upkeep and repair of the leased premises.

Utilities and Operating Expenses

• Utility Costs: Clarify who is responsible for utility payments and any related charges.
• CAM Charges: Describe the method for calculating and allocating common area maintenance expenses.
• Required Coverage: List the types of insurance both the landlord and tenant must carry.
• Additional Insured:  May specify that the landlord can be named as an additional insured on the tenant’s policies. (Optional)

Default and Termination

• Default Provisions: Define what constitutes a default and the remedies available to either party.
• Termination Rights: Detail the conditions under which either party can terminate the lease early.

Dispute Resolution

• Mediation and Arbitration: Include clauses addressing how disputes are to be resolved, either litigation, mediation, or arbitration.

Subletting and Assignment

• Subletting: State whether subletting is permitted and any conditions that must be met.
• Assignment: Outline the process for assigning the lease to another party and any required approvals.

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