Recently the New York Times ran this short article about the complexities of breaking an apartment lease in New York City. A friend of mine who is a broker at a Chicago leasing agency posted it to my Facebook with the comment, “would love to hear your take on the subject under Chicago’s RLTO. We get a lot of people looking for off-season re-let help for peak-season leases. It’s a rough world.”
Quick answer: if you know what you’re doing, it can be very easy. When I was trying to find a sub-lessee for my old apartment in 2007, it took me about a week despite it being a vintage top floor walk-up in Rogers Park during the off-season. But at that point I’d already been showing property professionally for 2 years and I knew both a) what my landlord required and b) how to pitch an apartment. If you don’t know what you’re doing, it can be obscenely difficult. Case in point, my friend whose departure from her Chicago apartment for the Netherlands wound up involving two attorneys, a Realtor, a middle of the night move-out and some serious fretting that her landlord would come in during the workday and poison her pets.
So how can the same starting situation wind up so vastly different? There are, as I’m sure you can guess, a number of factors involved.
1. The Nature of the Lease.
So imagine you’re sitting in a restaurant and you’ve just finished your appetizer. Before your main course can arrive, you get an emergency call from a friend who needs you to come pick her up from a date that’s going horribly wrong. You call over the waiter and say, “I need to leave now. Can you just bring me the main course to go and the check?” The waiter says, “I’m sorry, you will have to find someone to replace yourself before I can allow you to leave, or pay a penalty of three times the cost of your appetizer.”
Totally preposterous, right? And yet this is the situation that renters face every time they have to break a lease. There is no other situation that I can think of where you have the option of passing your contract on for someone else to complete on your behalf. In most situations where you have to break a contract, you pay off what’s left of the balance due before leaving. Sure, people may sell off the remainder of a health club membership, but it isn’t a requirement. To sell your car to a private buyer you have to own the title free and clear. To sell a house you need to pay off the mortgage first.
Leasing has become a business that’s about as complicated as human resources. There are pitfalls and traps all over the place. The state requires even the most basic of leasing agents to take some licensing courses on fair housing law before starting to show apartments. But landlords on the daily ask tenants to take on this task for themselves when it’s time to break a lease.
So why is this an option exclusive to renting? From a historical perspective it’s because leases arose from farmland rental. If a renter in medieval Europe bailed before their lease ended, they left behind a field of rotting vegetables or a fallow section of good farmland. But it persists into modern times primarily because renting is so darn expensive.
If you’re being smart with your money you’re still going to be paying a quarter of your monthly income to your landlord. Landlords and legislators understand that asking for a lease break fee of 3-4 months rent, let alone a full lump sum payoff of whatever is still due on the remainder of your lease, is simply not feasible for most renters. So in order to maintain a “get out of jail free” card for the poorest of renters, the city of Chicago mandates that landlords must allow tenants to sublease at no cost. Additionally, many landlords provide ways for tenants to break their leases without paying the full balance of the year.
2. Legal Mumbo Jumbo.
The terms ‘sublease’ and ‘broken lease’ are often used interchangeably in common conversation. But subleasing is not breaking your lease – in fact, it’s quite the opposite. I like to explain lease break terms like track events. Suppose the lease is a baton in a relay race. In a sublease, you hand off the “baton” to your sub-lessee but the race keeps going. Re-letting is breaking your lease. To continue the racing analogy, in this case there is no baton hand-off. The race ends and everyone goes back to the starting line.
In a sublease, your lease remains valid, with your sub-lessee added to it as if they were a roommate. You remain liable for their behavior and payments until the original expiration date has passed. In contrast, if you re let the place your contract is terminated early and the landlord creates a new contract with whoever takes your place.
Only subleases are dictated by the CRLTO as something that can be done at no cost to the outgoing tenant. If you choose to have your replacement tenant relet the place instead, the landlord can charge you any fee they like. A lot of tenants are caught by surprise when they realize that the free option could wind up saddling them with an eviction lawsuit long after they’ve moved out. Landlords that want to make a quick buck on re-letting fees may unduly emphasize all the bad things that can happen if a sub-lessee misbehaves.
Re-letting fees are supposed to be stated clearly in the lease. But landlords often gloss over this section of the lease at the time it is signed, hoping that by ignoring it the tenant will never think of the option of leaving early. Prospective renters will rarely mention at a showing that they’re thinking of cutting out early, as this will undoubtedly hurt their chances of getting approved to rent. Tenants must know what a sublease is, what re-letting is, and make sure to look for that clause before they sign.
3. Tenants’ opinions of leases.
If tenants had their way, every apartment would be rented on a month to month basis. When I worked in property management I had probably the most people hang up on me when I told them that no, we didn’t offer month-to-month, only year long leases. Tenants rent because they either a) cannot afford to buy or b) cannot predict that their lives will be stable enough for long enough to make buying worthwhile.
Many tenants feel chained to their leases, as if they have to put their lives on hold until their 12 month contract ends. Others eventually learn to disregard the printed end date on the contract and expect to pay the price of a security deposit in exchange for flexible mobility. (These folks are often surprised to learn that lease break fees often far exceed the amount held as a deposit.) So the lease itself becomes either a ball and chain, or a piece of junk not worth the paper it’s printed on.
4. Landlords’ opinions of tenants.
There are still a few kind hearted landlords who view tenants as good, honest hardworking people. The rest see tenants as greedy, selfish, dishonest, cheating scammers who all universally hate landlords. To a landlord, apartment turnover costs are the biggest red mark in the account books. To many landlords, a tenant who wants to break their lease is doing it as a personal slight. You really need to get into the level of huge corporate property management companies before you can get past the personal issues involved in breaking a contract with a landlord.
When a landlord hears that a tenant is trying to find a replacement, their first thought is screening. Landlords spend a huge amount of time and money trying to separate the greedy, selfish, dishonest, cheating scammers from the few who they’d be willing to house for a year. Many cannot fathom that an outgoing tenant would take the same amount of care in screening a replacement as they would if they did it themselves. Others worry that tenants who haven’t been trained in how to properly show property will badmouth them or skip over important rules of the building in the process of finding a replacement.
A good property manager can solve a lot of the personal problems that arise from tenants breaking leases. Property managers are aware of how many lease breaks actually occur – in my experience it was anywhere from a quarter to a third – and learn to to take it in stride.
5. The Off Season.
As we’ve discussed in earlier articles, Chicago’s rental market follows an annual saw tooth pattern. It’s very strong from April through September, and dead for the rest of the year. Landlords and agents both know that a wintertime vacancy can sit empty until spring. Tenants however, have no awareness of this yearly ebb and flow. Landlords who’ve been at it for a while will structure their leases so that non expire during the winter, but this doesn’t stop major life events from occurring in the lives of tenants. Jobs change. New relationships begin and old ones end. Babies arrive. People die. Houses are purchased. School ends. None of these things wait to happen between the months of April and September. I’ve yet to see an online dating profile seeking a partner with an apartment lease that ends on a specific date.
When a landlord hears that a tenant is breaking a lease in the middle of the off-season, they may wonder if the tenant is deliberately sticking them with a long term vacancy as some sort of punishment. When a tenant tries to find a replacement in the off-season, they may find it taking far longer than anticipated, to the tune of several months. For someone who has to be at a new job in Denver in two weeks this is not an ideal situation.
Because Chicago landlords structure their leases to avoid off-season vacancies, every opening that arises during this slow period will be a lease break. This means that all winter long, a landlord is dealing with the highest costs, the lowest income and no normal lease expirations to serve as positive offsets to the parade of broken promises. It all compounds in the mind of the landlord to make a tenant’s decision to leave in the winter smart like lemon juice poured on open wounds.
6. Cutting up the Commission Pie.
Normally if an apartment is vacant a landlord must either fill it themselves or pay an agency to do so. Pretty much every Chicago agent works on commission, with the standard going rate being one month’s rent for filling an apartment. Some landlords with large inventories will have their own in-house licensed leasing staff who are also paid on commission. Some of the duties that agents perform for these commissions are background checks, key hand offs, photography and contract negotiations.
If a tenant tells their landlord that they have to leave early, the landlord is obligated by the CRLTO to make a good faith effort to find a replacement at fair market value. So even if the tenant is in the process of finding their own replacement, the landlords in-house staff must churn into action, paying to list the property, show the property and get keys to outside agencies.
Suppose after this the outgoing tenant finds a sub-lessee. It is normally the outgoing tenant’s job now to go over the lease with their sub-lessee, ensure payments go to the right place and review all the rules. But most landlords are going to want to screen the sub-lessee, meet them and review the rules of the building in person. So the in-house staff is now working, but the landlord can’t charge the outgoing tenant for subleasing. Chances are, if you are subleasing your apartment, someone did some work without pay for it to occur.
Some outgoing tenants will hire agents on their own dime to locate a replacement for re-let. This can cause any number of problems. The Chicagoland MLS only allows one listing per property, but the landlord’s agent must post the listing in order to remain on the right side of the CRLTO. This means that the agent hired by the tenant cannot also post a listing and remain on the right side of the MLS!
Then you can encounter the problem of what happens when the tenant-hired agent finds an applicant within a few hours of the in-house agent. Many landlords charge a lower re-letting fee if the tenant sources their own replacement. The landlord actually stands to gain more by honoring the application from their own agents. Which one will win? Who will get paid? If the landlord accepts the applicant found by their own agents, will the tenant be forced to pay the higher re-letting fees? Will the tenant be forced to pay administrative fees to their own agent? It can turn into a horrible mess.
7. Sublease Shark Week
The Chicago Residential Landlord-Tenant Ordinance is a wonderful document. The Chicago building safety codes are also glorious bits of legislature. However, they can be gamed. There are certain attorneys and social service groups out there who shall remain unnamed, who use the CRLTO and Chicago building code as a lever to cause utter havoc in the landlord-tenant community. Here’s how the scenario goes:
You have to leave early. You post an ad on Craigslist in the “subleases and roommates” section. You get an email from an attorney or social service agency. “We can get you out of your lease!” it reads. “Simply pay us a few hundred dollars and we will serve your landlord with paperwork guaranteed to get you out of your lease!”
That paperwork is usually a form letter threatening a CRLTO lawsuit. It invariably accuses the landlord of violating any number of “gotchas” buried in the CRLTO and building codes. The ones we used to receive ran to 20 some-odd pages with hundreds of listed violations. Many will be outright lies, but chances are at least a few of the accusations are true and will stand in court. When faced with something like this, the Cook County court has a tendency to throw out invalid claims but allow the case itself to proceed on the basis of whatever remains. The minimum penalty that a landlord must pay for a CRLTO infraction is two times the rent plus attorney fees. When faced with these form letters most landlords will roll over and let the tenant leave.
Attorneys have learned that the court system will not entirely throw out cases of this nature. They have also learned that they can easily amp up mistrust between tenants and landlords to the point where tenants are willing to sue in order to break a lease. Easy money for the attorneys at the cost of lasting damage to both landlord and tenant. To a new landlord these cases can break the bank and force them out of the business. For tenants, well, if you think you can sue a landlord and still easily get approved for another apartment, remember what I said about screening in point 4 of this article. Litigious tenants are not a protected class.
A rough world indeed. It can certainly be improved. Not much can be done to account for the off-season as long as Chicago’s weather gets cold every winter. But landlords can learn to accept that tenants are by default not going to be around for the long haul. They could also accept that lease breaks are part of the business and establish payment policies for their agents accordingly. Tenants can learn to read the fine print about re-letting fees before they sign a lease. They can also benefit from having an attorney of their choice on speed dial the moment they decide that it’s time to leave. Laws aimed at tort reform could address the courts’ handling of junk cases.
How difficult is it to break a lease in Chicago? How difficult is it to win big in Vegas? The answers to both questions are pretty similar. With a little knowledge of the rules of the game and a lot of luck you can get out of there easily and call yourself a winner. Without either, you’re in for a very bad time indeed.