Termination and Renewal of Lease / Tenancy

A. Termination of Tenancy / Lease

Everyone who has ever rented a house knows that the tenancy / lease agreement (“Lease”) is a legally binding contract. Under normal circumstances, the property owner and the tenant cannot terminate the lease agreement unless they have violated the vital lease terms of the rental agreement, causing the other party to lose or terminate the lease (such as the tenant’s failure to pay rent or the landlord’s refusal to fix water leakage resulting in the property being unlivable).

B. Legal Termination

There are several avenues for either party to legally terminate a Lease.

1. Notice Period

If the Lease has:

(i) no fixed term;

(ii) a fixed term has expired with a notice period during the optional term; or

(iii)  a fixed term that has not been renewed but the tenant continues to stay on under a statutory month on month Lease;

Then either party can give a notice to the other party to terminate the Lease by giving advance notice at a specific time in accordance with the notice period requirement.

2. Tenant does not Pay Rent

The Lease can be terminated if the Tenant does not pay rent in full and on time. Normally, a grace period is given to the Tenant under the Lease. It gives the Tenant extra time to pay rent without penalty. While the grace period is in effect, the Landlord may issue a warning to the Tenant that non-payment of rent within grace period shall result in termination of the Lease. However, if the Tenant still does not pay after the grace period and a warning from the Landlord, then the Landlord can terminate the Lease.

3. Breach of Contract by the Tenant

Termination of the lease for breach of contract should be in accordance with any termination/ forfeiture clauses specified in the lease. Generally, it requires that the landlord must request the tenant to vacate and take back the property. If this is not stated in the Lease, the landlord (applicable to residential buildings only) may exercise the implied repossession rights under the common law.

For instance, if the tenant pays the rent on time but seriously violates the lease (for example, subletting, carrying out illegal activities, harassing others, installing illegal structures or causing the owners of the corporation to take enforcement actions), the landlord may terminate the lease and find another tenant. However, the landlord must notify the tenant in writing, specifying the breach where the Lease has been violated, and require the tenant to remedy the breach (or pay compensation) before termination and/or claiming possession of the property against the tenant.

4. Breach of Contract by the Landlord

There are certain limited situations where the tenant is legally able to break the Lease without penalties. The first one being the landlord is in breach of a key condition of the Lease. The condition breached should not just be any term but it must go to the heart of the contract. Therefore, it is important to clarify all the terms and fully understand everything before signing the Lease, including what would constitute a material breach of the Lease.

5. The Property is not Livable or Illegal

If the property has serious problems that make the living condition intolerable for the tenant, or if the structure itself is illegal, the tenant has every reason to terminate the Lease early without penalty by law. Obviously, the Tenant will need to have solid evidence to prove this, which may mean getting a real estate lawyer involved. In such cases, most landlords who are in the wrong will agree to let the tenant terminate the Lease early.

6. The Landlord failed to carry out Essential Repairs

This is related to the above. If something goes wrong in relation to the fixtures of the property (e.g. electricity, water or sewage), the landlord is required to repair and maintain the property. If the landlord refuses to carry out the necessary repairs to the place that hinders the Tenant from proper enjoyment of the property, the Tenant can request for a termination or a suspension of the Lease until the issue is fixed (e.g. if the property is flooded).  One will need to make sure that the Lease has detailed provisions on the responsibilities of the landlord, so that when there is a problem, there is no room for argument.

7. Violation of Privacy by the Landlord

Once the property is leased out, the landlord can only enter the property under very limited circumstances, such as an emergency. However, if the landlord completely ignores the privacy and personal space of the tenant, it would be a serious violation of the privacy, and legal actions (including criminal) can be taken. If the landlord does not respect the tenant's privacy in the property, the tenant is perfectly justified to terminate the lease and move out.

C. Repossession of the Property by the Landlord

In case of a legal termination by the landlord due to non-payment of rent or breach of the Lease by the tenant, if the tenant refuses to move out, the landlord may seek assistance from the bailiff to repossess the property. In addition, the landlord may apply to the court to request possession. It is at the court's discretion is to decide whether to grant such relief, taking into account the severity of the damage, whether the breach is “remediable” and / or whether it causes permanent damage to the property.

D. Mutual Agreement

Where there is no legal ground to terminate, the best way is to reach a mutual agreement between the landlord and the tenant to terminate. The main reasons why landlords would like to terminate early are usually to sell the property or move into the property. In such cases, the landlord would usually agree to pay a small compensation to the tenant for the inconvenience (1-3 months of rent). 

The reasons why tenants want to terminate their leases early vary. From completely unbelievable excuses to completely legitimate circumstances. Some tenants want to cancel the lease just because "they don't want to live here anymore", "I want children and need to move to a bigger house", "I moved to a new country for work". Although the lease contract is a signed legal document that both the landlord and the tenant should abide by, in practice, if the tenant really does not want to stay, it is impossible to force them to stay. Most landlords will just take the security deposit and let the tenant move out.

If the tenant really doesn't have money to pay the rent, then the landlord should agree to break the lease early. The following are situations where the landlord may be more compassionate and accommodating to the tenant's request to break the lease:

• The tenant has lost his / her job.
• The tenant is the victim of domestic violence.
• The tenant has experienced profound changes in life, such as divorce.
• The tenant will move to nursing homes or assisted living facilities.
• The tenant has suffered from serious illness or disability.

E. Tenancy / Lease Renewal

Renewing a tenancy / lease should be easier than entering into a new one. It is just a matter of negotiation on a new rent. In order to do so, one should conduct due diligence on the rents in the neighbourhood to see if one is paying more or less than the market. The best time to negotiate is around 30 to 60 days before the end of the lease.

Typically, rents would normally go up in line with property prices and inflation. There may be several reasons for the tenant asking for lower rents, but the three most common reasons are reduced income, reduced property value, and reimbursement for property maintenance. It is in the benefit of both the landlord and tenant to stay put, as there will be no agency cost and moving cost. As such, the landlord would normally give a small discount to an existing tenant to continue renting the property.