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How A Lease Takeover Actually Works (and common mistakes you should avoid)

Pro tip: use the calculator right now to know how much a lease takeover will cost you

This is the tenant's ultimate guide to doing a lease takeover (cheesy, we know)

But...we packed this post full of essential content tenants need to know when they want to use a lease takeover to get out of a lease agreement early.

...because there are many common mistakes with lease takeovers, and each one could cost you several thousand dollars! No, seriously. We spoke to about 700 tenants about their lease takeovers, and the average cost of a lease takeover mistake, across 700 lease takeover examples, was about $1,200—and many lease takeovers feature multiple mistakes, at an average of $1,200 per "oops."

We based this guide on in-depth conversations with hundreds of tenants who have actually done a lease takeover, and we tried to highlight the points they emphasized based on those experiences: "these are the things you should definitely do," "the things you should definitely not do," and the calculations you need to do right upfront.

What this guide includes...

  1. [Part A] A free calculator you can use right now to know how much a lease takeover will cost you (including financial comparisons to lease takeover alternatives that many tenants do not know about)
  2. [Part B] A comparison of the two different types of lease takeovers (including an explanation of why you only want to do the first type if you can help it)
  3. [Part C] The legal and financial mechanics of how a lease takeover works (including examples of legal documents tenants have used to do a lease takeover)

[Part A] "It would be nice if there were a calculator to give you a simple cost-benefit analysis of a lease takeover."

That is what one tenant said when we interviewed her, and you know, we thought that, too. So we spent about a month building one and included it in this guide for anyone to use!

Go ahead...take it for a spin:

Tough situations = expensive incentives. And that is why we decided to build this calculator. This calculator makes it easy to not only know how much your lease takeover will cost, but also how that cost compares to the 700+ other lease takeover cases we looked at. You should start here so that you have a good grasp of the numbers. Then you could dive a little deeper into the details in parts B and C.

[Part B] There are two types of lease takeovers

Firsts things first—you need to understand the difference between the two types of lease takeovers, because one type is way better than the other. Here are the differences and how you can tell them apart.

Type 1: the "replacement lease takeover"

The first type is the one that you want if you are the tenant who needs to get out of your lease early. Some landlords will allow a tenant to basically terminate his/her existing lease agreement if and when a replacement tenant is found. We might call this type a "replacement lease takeover."

(And technically, this is the only type to which the term "lease takeover" refers, but people often use the same term to refer to a "sub-lease," which is not a true lease takeover, and we will say more about that when we talk about type 2).

Many tenants we talked to seemed to assume that this is the type of lease takeover they were doing (or did), but when we looked into the details, we discovered that to be a mistaken assumption. So how do you know if this is the type of lease takeover you are actually doing?

This is what you could expect to happen if you were to do a replacement lease takeover. Your landlord must agree to this, in writing, and he/she could either agree to an "assignment" of your existing lease or a total replacement. In both cases, your lease agreement with your landlord would end the moment your landlord signs a new lease with another tenant for the property you now occupy.

But the way that an assignment works is slightly different than a replacement.

With an assignment, there might not be any changes made to your current lease agreement—no term extension, no change is lease fees, etc.—you are simply substituting your name on the lease with the new tenant's name, and you ride off into the sunset with no further liability for the lease. And although a replacement results in the same outcome, the difference is that the landlord might require the new tenant to start from scratch by signing a new lease agreement entirely. Either way, as long as you obtain your landlord's consent in writing that (1) you are permitted to find another tenant and that (2) he agrees to moving forward with one of the tenants you found and that (3) once this tenant signs the lease, you are no longer liable, you should be in good shape.

Now we will pause here for a moment to talk about the second type of a lease takeover, and then we will conclude this section by equipping you with template legal documents you might find useful for properly executing a lease takeover.

Type 2: the "sub-lease lease takeover"

Now, as we already said, a sub-lease is not truly a lease takeover. But since so many people incorrectly refer to a sub-lease as a leas takeover, we wanted to include it here so that you know what a bad situation would look like—so that you can avoid it if possible.

A sub-lease is when you execute an agreement with a new tenant to sub-lease your property, and your original lease between you and your landlord remains intact. There is a proper use for sub-leasing, but doing a lease takeover is not it. The proper use of sub-leasing is when you, the tenant, wish to remain the tenant of the property. You might, for example, wish to only sub-lease a portion of your property, like a bedroom; or you might wish to sub-lease your property for a fraction of your lease term, like, say, for a few months while you are out of town. You want to remain the tenant of record, because you want to retain control of the property.

Sometimes you are legally required to obtain your landlord's consent before sub-leasing, but since your goal should not be to sub-lease, but rather to do a type 1, proper lease takeover, we will not expound further on the proper execution of a sub-lease. Suffice it to say that entering into a lease takeover with someone without a written agreement signed by all parties, including the landlord, is dangerous. A written assignment of lease that clearly states the terms and conditions under which you are allowing someone to take over your lease is valuable as evidence in the event of a dispute between you and the new tenant or between you and your landlord. And without this written consent, what you might believe to be a type 1 lease takeover could be rendered invalid at worst, or a type 2 lease takeover at best (which, without your landlord's consent, is still rather bad, because it excuses you from no liability under your original lease).

When you sub-lease, you become the landlord to your sub-tenant.

A sub-lease is not a lease assignment or (replacement) lease takeover, because you remain the tenant. As far as your landlord is concerned, you are responsible for payment of the rent on the property described in your lease. The sublease does not relieve you of your lease obligations to your landlord. This is why you do not want to do this type of lease takeover.

[Part C] The legal and financial mechanics of how a lease takeover works

Think of this section as a checklist of questions for you to ask. To answer each question, you will need to talk to your landlord, reach your contract, and understand any relevant state laws. But do not worry...we will try to break each of those down into easy-to-understand points that you do not need to be an attorney to understand.

(Otherwise, what would be the point--right)?

Does your lease even allow you to do a lease takeover?

It may not. Because a landlord's profit margin gets thinner every time a tenant asks him/her to do something extra, your landlord might have actually added language to the contract that says you are not allowed to do a lease takeover at all.

And if your contract does have that language that says you cannot do a lease takeover, does your state law overrule that by allowing tenants to do a reasonable lease takeover regardless of the landlord's wishes?

Does your contract include either of these tricky provisions?

Now, if your contract does allow a lease takeover, it will likely include restrictions or specific procedures for getting landlord approval. For example, you may be required to give your landlord 60 days' notice and forfeit your security deposit. Pay careful attention to those details now, because either of those restrictions could cost you a heap, and both together could cost you [whatever is bigger than a heap]. Additionally, landlord approval itself can be a hassle, and if that means that you have to wait several days or weeks for your landlord to give you the required permission, then you need to consider that, too.

(We have tried to capture all of these variables in the lease takeover calculator above, by the way; and if you have not done so already, you can use that calculator for free now).

Examples of how these details can cost you (and result in nasty surprises):

  • You forget to calculate the cost of two extra months' of rent payments before you can even begin lease takeover proceedings.
  • You forget that you will have to leave your security deposit behind.
  • Your landlord takes a long time to respond to each of your messages, resulting in you having to make more rent payments while you wait.

Are you working for free? Yes...yes you are

In general, it is illegal in the United States to employ someone to do work but not pay him/her. Not so with lease takeovers. When you do a lease takeover, you have to realize that what you are doing is working to find your landlord another tenant. And that is something landlords pay leasing agents to do. But you are doing that work for free. And while a landlord may be contractually obligated to pay a leasing agent several thousand dollars for doing the same work you are doing, your lease agreement probably prevents your landlord from having to pay you anything. Ouch.

Why are you considering doing a lease takeover?

If it is simply that your life circumstances have changed, and it is now better for you to move on, then you might not have many options.

However, very few tenants manage to live in a property and accumulate no legitimate gripes with either the landlord or the property itself. Think about it. Have you ever complained about anything that was broken? Have you ever noticed anything wrong on your bill? If so, then those complaints could be a valuable basis for you not being limited to a lease takeover as your only way to get out of your lease early.

Here are some common reasons tenants are able to get out of their leases early--without having to do a lease takeover: broken appliances, plumbing issues, hvac issues (that means heating and air conditioning), mold, pest infestation, leaking roof, a history of written complaints to landlord for past issues, and possibly the feeling that your landlord retaliated against you in some way for complaining.

Perhaps the best way for you to take inventory of any past issues you have had, and determine whether those might open the door to some lease takeover alternative, is to read the actual legal documents other tenants have used in the past to avoid doing a costly lease takeover. And if you like, we are happy to share those with you for free. Just let us know that you want the documents and where to send them.

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