Here’s a question from Don, ‘My tenant and I signed a tenancy agreement, and he paid one week’s rent in advance, but the day before moving in, he pulled out of the agreement. How much rent can I recoup, and what happens next?’
When a tenant bails at the last minute, it can be incredibly distressing and disruptive for the landlord. Don’t worry, I’ve got you. Let’s take things one step at a time!
Is there a tenancy?
This is a crucial distinction. If no tenancy has been established, the tenant isn’t legally obligated to Don and could even request a refund of the rent. However, if a tenancy does exist, Don can rely on legal protections to mitigate his opportunity cost.
In this case, yes, there is a tenancy. According to the Residential Tenancies Act (RTA), a tenancy is defined, in part, as “the right to occupy the premises (whether exclusively or otherwise) in consideration for rent.” The tenancy agreement grants the tenant the right to occupy, and the one week’s rent paid in advance is consideration. The only way for the tenant to move on is to terminate the tenancy.
Tenancy type matters
Termination unfolds differently depending on the type of tenancy.
Fixed term tenancy
If the tenancy is fixed-term, the tenant has to explore early termination with Don’s consent or apply to the Tribunal for termination:
If Don consents to early termination, the tenancy will terminate on an agreed-upon date. Under s44A, Don is entitled to be reimbursed for any reasonable expenses incurred due to the early termination. The question Don has to ask himself is, ‘Would I be spending this money if the tenancy is not terminated early?’ See here for more.
If Don refuses the tenant’s request to terminate early, the tenant can apply to the Tribunal for a ruling. However, this process can be lengthy, and the tenant remains liable for rent until the Tribunal decides.
Related Article: Can DIY Landlords Charge for Their Time? Understanding s44A of the RTA
Periodic tenancy
If the tenancy is periodic, the tenant can be terminated by notice or by agreement:
If the tenant terminates by notice, the minimum notice period is 28 days. Both parties remain obligated to each other throughout the notice period.
Suppose Don and the tenant agree to terminate earlier. In that case, they remain obligated to each other throughout the remainder of the tenancy, and the tenant can minimise his financial obligations to Don.
Don’s rights and responsibilities as a landlord
Once a tenancy agreement is signed and rent is paid, the tenancy is legally established under the RTA. This means the tenant is responsible for rent payments during the notice period, whether it’s the full 28 days or a shorter period agreed upon by both parties.
Even if the tenant decides not to occupy the property, he must still pay rent for the notice period. During this time, Don cannot lease the property to someone else, as the tenant retains exclusive possession until the tenancy terminates.
Finding a balanced approach
While the RTA clearly outlines each party’s rights and obligations, it doesn’t always provide clear guidance on the right thing to do. A tenant who has gone as far as paying rent in advance is unlikely to have reneged on the agreement lightly. As much as Don is able, I urge him to act as humanely as possible. If there is a second preferred tenant from the application process, Don can reach out to them and potentially shorten the original tenant’s notice period. Not only does this help the tenant financially, it also allows Don to mitigate any potential loss.
Communication is key
Maintaining open and clear communication with the tenant is essential. Don can explain that while the law entitles him to claim rent for up to 28 days—or recover reasonable expenses in the case of a fixed-term tenancy—he is open to negotiating a shorter notice period if a replacement tenant is found quickly. This approach helps preserve a positive relationship and ensures the property isn’t vacant longer than necessary.
Understanding the nuances of fixed-term and periodic tenancies is key to navigating situations where a tenant backs out at the last minute. By balancing your legal rights with a practical and empathetic approach, you can resolve these challenges efficiently and with minimal stress.
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One of the great perks of being an APIA member is access to expert advice whenever you need it. If you have any property-related questions—whether it’s about tenancy rules, tax strategies, or anything in between—just reach out! We’re here to provide the guidance and support that comes with your membership.
Sarina Gibbon
Sarina Gibbon is the general manager of the APIA.
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