Breaking a Lease in Chicago

When You’ve Gotta Go…

Lease breaks happen. Landlords hate them and often get really grumpy when their tenants don’t honor the full term of their lease agreements. They’re totally justified in being dour about it, especially if the tenant takes off in the middle of the winter. It’s an inconvenience, a hit to the wallet, a bad time for a vacancy, not to mention a broken promise. However, it’s important to remember that tenants, especially with home prices as low as they are here in late 2012, are renting for a reason. They know they can’t commit to a long-term home ownership situation. They know they may have to cut out early. They are renting because they are trying to be responsible about their large-scale purchases. The whole point of renting is that it allows for a much easier “out.”

I’d say that about 30-40% of the 1200+ leases that I have worked on since 2005 have wound up with the tenant leaving in the middle of a contract term. They may stay for a year, renew the lease, and then leave halfway through the second year, they may bolt in the middle of their first month, or they may even stay for 10 years and then suddenly have to depart. No matter what, it’s still means a broken lease and the potential for some very bad blood between the landlord and their departing tenant.

In Chicago, there’s two standard routes that a responsible tenant can take to break a lease. One is subleasing and the other is rerenting. They are often confused and somewhat murky. So, in the interest of making everything very clear, I’ve gone ahead and made a twee pink infographic for you, available after the jump.

Click image to view in all its 1024 x 1328 glory.

That’s right, darling piggies, I’m doing infographics now. $#!& just got real.

The Five Options.

So there’s really five options, but the two that I outlined in the graphic are most common and easily confused.

1. Subleasing. The CRLTO mandates that a landlord must allow a tenant to enter into a sublease and cannot charge the outgoing tenant to do so. The master lease between the landlord and original tenant continues all the way through. The sublease is drawn up between the original tenant and his/her replacement. All three names stay on the lease until the original document expires. The original tenant remains just as liable as their replacement for unpaid rent and damages.

Once the original lease ends, the replacement (sublessee) can sign a new lease with the landlord directly. The original tenant can get their deposit back and the apartment can get turned over, cleaned and painted as if a new tenant were moving in.

2. Rerental.  A lot of tenants don’t like being liable for the behavior of strangers. They want to end their lease early and have the replacement start a brand new lease. That’s fine and dandy, but it isn’t a sublease. As soon as you’re out of the realm of subleasing, the protection of the CRLTO mandate no longer applies and the landlord can charge the original tenant for the privilege of an early lease termination.

Just like getting out of any other contract, there is a cost. Generally the amount that a landlord will charge for rerental will be outlined in the lease. If not, the landlord may still be able to deduct actual costs incurred, such as agency commissions, from the original tenant’s security deposit provided they can show receipts.

It should also be noted that the landlord is required by the CRLTO to start looking for a replacement as soon as the old tenant says they’re leaving.

In both of the cases above, the outbound tenant remains liable for rent until the day someone else starts paying it instead. These two options are favored because they pretty fairly divide the responsibility and liability amongst the parties involved. However, some tenants don’t like the idea of having to pay for months and months of rent after they’ve left while the landlord tries to find a replacement. That leads us to the two less fairly-balanced options.

3. Immediate Termination. Not every landlord offers this. Not every landlord should. And definitely no Chicago landlord should do so in the middle of winter unless they’ve got a replacement tenant already lined up.

If the landlord is convinced that they can find a new tenant before they wind up in the red, they can offer the outgoing tenant the option of paying a higher fee to totally terminate their lease immediately, with no ongoing liability.

This option is still kind of fair, provided that the landlord sets the termination fee high enough. Basically it’s putting the entire burden of finding a new tenant onto the landlord, no matter how long it takes. However, the landlord retains some amount of control over the situation in that they can set the termination fee as high as necessary to offset the expected downtime.

4. Cut and Run.  The prior three options were all viable for responsible tenants. Of course, this fourth one is also always on the table too, and hovers in the background of every series of lease break negotiations. I should also mention that for newbie tenants and landlords this is often the expected exit method. Tenants assume that the cost of a broken lease will be their security deposit, and surmise that the landlord will notice that they’re gone when the rent goes unpaid for a couple of months.

Of course, tenants who engage in such behavior risk the landlord taking them to collections, or obtaining a judgment for unpaid rent which will follow them around on their credit report for years. Cutting and running without notice is totally unfair to the landlord. However, the landlord must remember that while they can theoretically sue for lost income, there is a fine line between collections (legal) and retaliation (illegal), and the courts are quite aware of the difference.

Landlords would do well to remember that no matter how forthright and proper an outgoing tenant is about her intent to leave early, if you drag on the negotiations or the rerental process for too long, this will become the outbound tenant’s preferred choice. Your cash flow is not their problem. If you want your apartment to remain occupied you need to stay in communication with your tenant, remain aware of their plans, clearly communicate your lease break policies, and work efficiently to find a new tenant if they give notice of an early departure.

Oh yes, and there’s one more method that involves a lot of dirty pool, but as I do promise the unvarnished truth here at StrawStickStone, I’m including it for good measure.

5. Invoke the Tenants’ Union. Full disclosure here: I offered to volunteer as a staffer on the hotline for one of the Chicago-area Tenants’ Unions and they refused my assistance. According to their volunteer coordinator, since I was unable to unequivocally state that I could endorse the tenant’s side of a dispute in every situation regardless of what the law stated, I was a poor fit for their business model.

Chicago has at least two organizations who claim to represent renters and call themselves “tenants’ unions.” They offer a myriad of dispute-resolution services. They also offer to assist tenants with breaking their leases when the landlord is likely to retaliate. There are provisions in the law for tenants to terminate their lease when their property is in bad shape or the landlord is doing illegal things. It’s called “constructive eviction” and a tenant can do it themselves without the unions’ assistance. The union just makes it easier.

For a few hundred dollars, the union will send a pack of letters to the offending landlord on behalf of the tenant. These letters accuse the landlord of breaking a large number of laws in hopes that at least one of the accusations is true. Included are such gems as:

  • Failure to disclose the name and address of the bank where the deposit is held.
  • Failure to disclose all violations and utility shut off notices within the past 12 months prior to the start of the lease.
  • Lapsed fire extinguisher inspection tags.
  • Keeping fire doors propped open.
  • Failure to disclose estimated utility costs for tenant-heated apartments.

If the landlord chooses to push back against the tenants’ union, the next stage is the courthouse. Landlords are welcome to fight these letters. I personally wish that more of them would. However, it’s annoying and expensive to do so, and given the state of the courts in Cook County when it comes to landlord-tenant matters your chances of winning are slim. The accusations run on for pages. Chances are at least one of them will be true, and if so, you’ve lost your case.

There are certainly bad apartments and bad landlords who endanger their tenants. I do not begrudge tenants the right to get out of a dangerous situation. Constructive evictions are a very necessary part of landlord-tenant law. What I do not like is the current practice of using these letters as a “get out of jail free” card: tenants will use them against any landlord regardless of circumstance. And I definitely do not like the unions’ strategy from a few years back of contacting tenants who are listing their apartments for sublease on Craigslist and offering these letters as an alternative.

So what have we learned today?

Broken leases are an unavoidable aspect of being in the apartment business. They’re one of the things that make renting attractive to tenants, no matter how much they damage the landlord’s bottom line. In my opinion it’s better for the landlord to focus your energy on controlling the variables that are within reach, rather than wasting stress on the ones that you can’t affect. Rather than bringing anger back to the tenant, learn to take it in stride. Expect broken leases, work them into your risk profile, and know how to handle them efficiently when they occur.

Both sides have many choices available to them when it comes to breaking the promise of a long-term occupancy. Both can avoid all of this by going month-to-month exclusively, but as that heightens the chances of a wintertime vacancy and eliminates the protection of a written lease, it’s a devil’s bargain. I’d personally rather have the written lease and know that over half of the tenant population will honor it, another good chunk will at least try to do so, and plan accordingly for the scant handful of irresponsible jerks who leave without notice.

If anyone reading is unclear on the differences between subleasing and rerenting, let me know in the comments. Otherwise please share with anyone you know who might need some help understanding their options.

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