FALLING rental rates, low house prices and economic uncertainty are fuelling a surge in Perth tenants breaking their leases.
Realmark West executive management director Leigh-Michel Hobbs said rents were dropping and landlords unfamiliar with the current oversupply and diminishing demand were unwilling to meet the market. As a result, tenants were looking elsewhere.
“Also, business sentiment is uncertain, steady employment is under threat and some tenants are unable to meet their commitments,” she said.
The Property Exchange business development manager Siobhan Payne said their agency was also experiencing an influx of break leases due to rental prices softening and the economic climate.
“We’ve had executive tenants who have had their contracts terminated or been made redundant, in turn they’ve returned to their own homes overseas,” she said.
“We’ve also found many tenants are buying properties whilst the interest rates and sales prices are lower than experienced in many years.”
REIWA president Hayden Groves said their advice line had received a lot of calls about break lease situations.
“At the moment, both the rental and sales markets are facing downward pressure, which is unusual,” he said.
“It could be that tenants are taking the opportunity to buy their own home, but they are also taking advantage of the lower rental prices. A lot more break leases are occurring, especially in the apartment sector, where new apartments are coming to the market.
“A tenant living in an older apartment might find they can rent a brand new apartment for the same price as their old apartment and are breaking their lease.”
While saving money on rent or buying a home might be attractive, breaking a lease could be risky and costly.
“If a tenant chooses to break a lease, as with any contract, they are still bound to fulfil their obligations, such as paying rent, utilities and maintaining the property, as if they were still living at the property, until either the lease expires or the owner secures another lease,” Ms Hobbs said.
“Vacating the property and leasing elsewhere can often result in two lots of rent being paid, so breaking a lease should not be taken lightly.”
Even if the owner found a new tenant quickly, the vacating tenant might still be responsible for any shortfall in rent.
“If the tenant was paying $400 per week and the new tenant is paying $350 per week, the former tenant may have to pay the difference until their lease ends,” Mr Groves said.
Ms Payne said tenants might also face break lease fees associated with vacating their rental early.
“There’s no accounting for unforeseen circumstances,” she said.
“However in the majority of break lease cases, it’s a smooth process which we try to ensure has a minimal impact on both the owner and tenant financially and to minimise stress on all parties.”
Ms Hobbs said to temper her owners’ concerns about falling rents reducing their rental income, she encouraged them to look at refinancing their investment loan.
“This can result in a saving of interest, which often exceeds this loss, enabling them to confidently reduce rents in the knowledge that they will be better off overall,” she said. n