Can you break a lease if you buy a house?

In this Redfin article we answer your questions about terminating a lease when you buy a house. Whether you are working on buying a house in Cincinnati, OHor start watching homes for sale in raleigh, ncHere you can read what you need to take into account if you have to terminate your rental contract.

Key Takeaways

• Purchasing a home alone is generally not a legally protected reason for early termination.
• You can break a lease to buy a house, but there may be financial consequences.
• Read your lease agreement to understand the consequences of early termination of a lease agreement.
• Consider negotiating with your landlord about costs, finding a new tenant or subletting.

Can you break a lease if you buy a house?

Yes, technically you can break a lease if you buy a house, but there may be consequences. The outcome depends on the terms of your lease and the steps you take to end your lease.

Possible consequences

A rental agreement is a legally binding contract between you and your landlord or property manager, where it is expected that both parties will adhere to the terms and conditions set out in the agreement.

If you break a lease early, you are technically breaking the contract unless you are within your right to do so as set out in the agreement. A common consequence of breaking a lease early is financial penalties. These can be costly and could affect your home buying budget or your credit score.

Reasons why you can break a lease

There are several reasons why you can break a lease without consequences, but buying a house is usually not one of them. Valid reasons are often:

• You are an active duty soldier who is deployed or transferred
• You are a victim of domestic violence
• Your lease was illegal
• Your landlord has not sufficiently maintained the property as described in your rental contract
• Your landlord has violated the terms of the lease

There are usually steps you need to follow, such as the right steps message to clear or send a letter to your landlord. Laws vary by state, so be sure to consult an attorney.

How to Get Out of Your Lease to Buy a House

There are several options you can take to better understand how to get out of your lease if you are in the process of doing so buy a house. Here are some things you can do:

Check your lease agreement

The first step is to review your rental agreement. In this document you can read the reasons for which you can break your rental contract without penalty, what happens if you break a rental contract prematurely and possible other options.

In your rental agreement you may find the following:

• Early Termination Fees: If you break your lease early, you will likely owe an early termination fee. This often involves a one-off payment, ranging from 2 to 4 months’ rent. You may also lose your deposit or incur additional costs in finding a new tenant.
• Lease buyout: You may have the option (or in some cases may need to buy out the remainder of your lease). This means that you must pay the remaining rent on your rental contract. If you have several months left on your lease, this could be expensive.
• Mortgage clause: Although unusual, it is possible for your lease to include a home purchase or mortgage clause. This clause allows you to terminate the lease if you buy a house. These usually require additional proof and a longer notice period (often 30-60 days).

Talk to your landlord

Depending on the options outlined in your lease, it’s time to talk to your landlord or property manager. They may be willing to negotiate with you. If there is a high demand for rental properties in your area, they may be willing to let you terminate the lease early. Some other options include asking for a reduction in the early termination fee, adjusting the notice period to vacate your unit, or offering a new tenant.

Change to a monthly agreement

You can also ask if your landlord wants to transfer your rental contract to a month-to-month agreement. A month-to-month rental agreement gives you more flexibility because you are not tied to a one-year rental agreement. Normally you only need 30 days notice before you travel. However, monthly agreements can be more expensive than a long-term rental agreement.

Keep all data and documentation

Regardless of how you end your lease, keep all communications with your landlord, including emails, messages, any documents you signed, past and new leases, current and past payments, etc. Any changes to your lease must be in writing and signed by both parties. If there are any problems, you have all the necessary documents.

Pros and cons of breaking a lease to buy a house

Benefits of breaking a lease

• Buying the right house: If you are looking for a home and have found one that meets your needs, budget and long-term goals, it may be a good idea to end your lease early.
• Financial sanctions can be manageable: Depending on what your lease agreement says, breaking your lease may not be as expensive as you expected. For example, if your lease is about to expire, early termination fees may fit within your budget.
• Build equity earlier: By buying a house you build equity. If you’re in a good financial position, buying a home now can help you start building equity sooner, rather than having to pay rent in the coming months.

Disadvantages of breaking a lease

• Financial penalties: It can be costly if you have to buy out our lease or pay several months’ rent as a penalty for breaking your lease early.
• Potential impact on credit score: Your landlord may report your broken lease to a credit bureau, which could affect your credit score. If you don’t make the proper payments or stop paying your rent, it can also affect your credit score and your landlord could send you to collections.
• Impact on rental history: Breaking a rental agreement is usually stated on your policy rental history report. This can make it difficult to rent in the future. If you need a reference from your landlord in the future, they may not want to give you a good reference.

Alternatives to breaking a lease

There are a few alternatives to breaking a lease, some of which we discussed above.

Negotiating a rental purchase

Sometimes a lease buyout is the best option. This prevents you from having a “broken lease” in your rental history and can cost less than the early termination fee if your term is close to expiration.

Subletting your apartment

If your rental contract allows this sublettingyou can find a subtenant who will pay you rent for the remainder of the term. Your landlord may still need to approve the tenant, and you will remain responsible if he or she does not pay the rent.

Find a new tenant

Also called “assigning the lease,” your landlord may have you find a new tenant who will sign a new lease for the apartment. Your landlord may allow you to terminate the lease with fewer consequences, as long as you have found a new tenant for the unit.

Agree on a later closing date

If you’re in the process of buying a home, consider negotiating a later closing date. This can be especially helpful for the seller if he is in the process of buying a new home, as it gives him more time to close the deal.

Should You Break a Lease to Buy a House?

Ultimately, breaking a lease when you buy a home depends on your finances and your home buying goals. If you don’t plan to rent again in the future and the early termination fees aren’t as expensive as you expected, then it may make sense to break your lease. However, if you have to pay several months’ rent as a result of breaking the lease, it may be wiser to wait before buying a house.