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Calculation of Compensation for Early Termination of a Rental Agreement

Compensation has to be made to the rental provider or the landlord when a renter terminates a rental agreement earlier than the required notice period. If the renter refuse to make a Compensation. The rental provider can apply to VCAT for an order that the renter pay compensation.

What is a lease break?

A lease break happens when a renter:

  • ends their fixed-term rental agreement earlier than the agreed date listed in the agreement, or

  • ends their periodic (month-to-month) rental agreement earlier than the required notice period of 28 days.

How is the amount of compensation determined?

When the new case is lodged to VCAT, the main factors considered in determining the amount of compensation are:

  • any relevant advertising costs and re-letting fees (in proportion to the actual cost to the rental provider to secure the renter)

  • the amount of lost rent that could have been reasonably avoided by promptly reletting the property to a new renter

  • any severe hardship the renter would have been expected to suffer due to an unforeseen change in circumstances, if the agreement had continued.

Cases that have happened

A renter lived in a rental property with a 12-months fixed term lease agreement , $500 rent per week and a $500 letting fee.

They send a notice to the property manager that they will terminate the lease six months before the end date on the lease agreement. The property manager advertises the property for rent immediately and finds a new renter. The advertising costs were $250. The new renter enters the property one week after the previous renter vacates.

The rental provider's costs of advertising and letting fees are $1000. This is made up of:

  • $500 for a week’s rent

  • $250 for the letting fee. This is half of the $500 fee, because the renter lived in the property for half of the 12-month fixed term, and

  • $250 advertising costs.

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