Does the 2 year lease actually assure me of rental income for that time period?

A landlord asks us:

Here is a view of the courtyard at the Royalton
Here is a view of the courtyard at the Royalton

I should know the answer to this question but does the 2 year lease actually assure me of rental income for that time period? In other words, if the tenant breaks the lease after 12 months do I have any financial recourse/protection or do I simply take my losses and start looking for another tenant?

Yes . . . and no.

The way our leases (and most leases in the Commonwealth of Virginia) are written, the lease is structured so that the tenant is agreeing to pay a large sum of money for a fixed period of occupancy.  That large sum is then divided into monthly payments.

For example, if the monthly rent is $1,000 then a tenant is promising to pay $12,000 for a one year lease.  For a two year lease of the same property the tenant is agreeing to pay $24,000 but will make monthly payments of $1000. The promise is to pay $12,000 not to pay $1,000 per month and this is an important distinction in the law because it means that if the tenant breaks the lease he is still obligated to pay the entire lease amount.

But here’s where it gets a little complicated.  If the tenant breaches his contract and defaults on the lease, then the landlord can sue and recover the entire amount left on the lease from the tenant.  At the same time, the landlord is obligated to attempt to mitigate his damages.  That means that if the tenant does breach the lease the landlord must try to find a replacement tenant.  However, the tenant is responsible for all the landlord’s damages.  For example, if there is an expense for finding a new tenant, the old tenant must pay that cost.  If there is any vacancy between the tenants, the old tenant must pay that to cover the landlord’s loss.  And a court will back the landlord up to that point.

However, if and when a new tenant is identified then the tenant is off the hook for any further debt which may be left on the lease.  The court will not allow the landlord to let a property sit vacant just because the tenant breached a lease. So the tenant has an obligation to find a new tenant and to minimize vacancy and to pay for any vacancy. But the landlord has an obligation to mitigate his damages.

In theory the tenant has obligated himself to pay two years of rent, but in reality things happen and we already have established practices to extract a tenant from a lease.

For more information or to set up an appointment call Nesbitt Realty at (703)765-0300.
Tips for Landlords, , ,

Will Nesbitt

View posts by Will Nesbitt
Will is the principal broker of Nesbitt Realty and Condo Alexandria. He is licensed in anywhere in the Commonwealth of Virginia, but focuses on those communities found in and around Alexandria, Arlington, Mount Vernon and Springfield/Franconia. Will has been involved in real estate management, sales and investment for more than twenty years. He is a veteran of the U.S. Army. While in the army, he studied Russian at Monterey's Defense Language Institute. He is also a "veteran of the dotcom wars" and built most of the sites associated with Will currently resides in Belle Haven Estates just outside Old Town, overlooking New Alexandria. He is a former president of the Mount Vernon Youth Athletic Association and founded the Alexandria Fun with Friends Group. Will is the author of BattlestorM, a tabletop fantasy game, which was published by Ral Partha Publishing in the late '90's, and Arthur's Realm, a boardgame available at the Gamecrafter.