Reletting Charge vs. Buy-Out Agreement: What Every Housing Provider Should Understand About Early Lease Terminations in South Carolina and Georgia
By: Eric Pettis – South Carolina Licensed Associate
with Brownlee Whitlow & Praet
Few situations create more confusion for housing providers than a resident who wants to move out before their lease expires. Housing providers are often faced with questions such as:
- Should we assess a reletting charge to the resident?
- Should we assess a buy-out fee instead?
- Can we charge both the reletting charge and the buy-out fee?
These questions are all legitimate and arise in communities across South Carolina and Georgia. Fortunately, the answers to these questions are relatively straightforward and depend on two simple questions:
- Is the resident ending the lease through the normal non-renewal process?
- If not, is the resident simply vacating the rental home, resulting in a reletting charge (as provided for in the National Apartment Association Lease), or is the resident entering into a Buy-Out Agreement?
Non-Renewal of a Lease
Every lease has a beginning and an end date. Most residential leases contain either a provision governed by state law or language within the lease itself that addresses what happens when the lease term expires.
In many cases, leases automatically renew. As a result, the tenancy will continue beyond the stated lease term unless either the resident or the housing provider provides notice that they intend to terminate the lease on the end date of the current lease period. Most leases require this notice to be provided 30 or 60 days before the lease expiration date.
Importantly, housing providers in South Carolina and Georgia cannot charge a resident any fees for properly non-renewing a lease. As long as the resident provides the required notice and vacates the community at the end of the lease term, the tenancy simply ends in accordance with the lease.
Reletting Charge vs. Buy-Out Fee
But what happens when a resident wants to terminate a lease before the expiration date rather than through the normal non-renewal process?
Generally, the resident has two options: (1) simply vacate the rental home, resulting in a reletting charge, or (2) properly execute a Buy-Out Agreement, if offered by the housing provider.
1. Reletting Charge
If a resident vacates the rental home before the expiration of the lease without authorization from the housing provider, the resident has generally breached the lease. Housing providers use various terms to describe this situation, including “skip,” “abandonment,” “lease break,” or “early lease termination” among others. Regardless of the terminology used, the result is generally the same: the resident has failed to comply with their contractual obligation under the lease to maintain possession of the rental home and pay rent through the end of the lease term.
To address this situation, many leases contain what is commonly referred to as an “early move-out fee” or “reletting charge,” which is often equal to one month’s worth of rent. Under most NAA leases, this provision is found in the Paragraph titled “Early Move-Out.”
In contract law, the reletting charge is commonly referred to as a liquidated damages provision. Simply put, liquidated damages are an amount that both parties agree in advance represents a portion of the housing provider’s anticipated losses resulting from the resident’s early departure. The reletting charge is intended to help compensate the housing provider for administrative expenses including advertising the rental home, showing the property to prospective residents, and processing applications needed to relet the rental home.
Importantly, the reletting charge does not eliminate the resident’s ongoing rent obligation if the lease outlines the continued obligations (the NAA lease does). Even after the charge is assessed, the resident generally remains responsible for rent that accrues until the earlier of: (1) the date the rental home is relet to a new resident, or (2) the original lease expiration date.
Nevertheless, a housing provider in South Carolina and Georgia may recover rent that accrues after the resident vacates the rental home only if the housing provider makes reasonable efforts to relet the premises, a concept known in the law as “mitigating damages.” If, despite those efforts, the community is unable to find a replacement resident before the original lease term expires, the resident may remain responsible for the remaining rent due under the lease.
For residents who wish to avoid the uncertainty of potentially owing months of future rent, a Buy-Out Agreement may provide an alternative solution.
2. Buy-Out Agreement
The primary benefit of a Buy-Out Agreement is that it can cut off a resident’s future rent obligations under the lease. This can be particularly valuable when a resident needs to terminate a lease early and has a significant amount of time remaining on the lease term. Instead of remaining liable for rent until the rental home is relet or the lease naturally expires, the resident can establish a fixed termination date and know the cost of ending the lease in advance.
To properly invoke a Buy-Out Agreement, a resident must generally satisfy several requirements. Although the exact requirements may vary depending on the lease or addendum form, the resident is typically required to: (1) provide written notice of the intent to buy out of the lease, (2) provide the required advance notice, often 60 days before the proposed termination date, (3) remain in compliance with the lease at the time notice is provided, and (4) pay the required buy-out fee, within the time specified by the buy-out, which is typically equal to two months’ worth of rent.
Housing providers in South Carolina and Georgia should also be aware of an important distinction: the reletting charge and the buy-out fee are alternative remedies and should not be assessed together. Generally, a reletting charge applies when a resident’s early move-out constitutes a breach of the lease, whereas a buy-out fee applies when the resident properly exercises the Buy-Out Agreement and satisfies all applicable requirements. If the resident exercises the buy-out that the housing provider proposes, then the Buy-Out Agreement would control, and the reletting charge would not be charged. The reason is simple. A Buy-Out Agreement is intended to provide a resident with a contractual mechanism to terminate the lease early and be released from all future rent obligations and liability under the lease (think settlement agreement). Once a resident properly invokes the Buy-Out Agreement and satisfies its requirements, the buy-out fee serves as the agreed-upon consideration for that release. However, if a resident breaches the terms of the Buy-Out Agreement (where you use the NAA Lease) and subsequently vacates the rental home, the Buy-Out Agreement becomes null and void, and the resident’s liability reverts to the obligations imposed under the original lease agreement, including the landlord’s right to assess a reletting charge where applicable.
Attempting to assess a reletting charge in addition to the buy-out fee could be viewed as inconsistent with the purpose of the Buy-Out Agreement and may be interpreted by a court as an impermissible penalty rather than a reasonable measure of damages. As a result, housing providers should carefully review their lease documents and avoid treating the reletting charge and buy-out fee as cumulative penalties.
Final Thoughts
When a resident chooses to move out before the expiration of the lease term instead of allowing the lease to end through the normal non-renewal process, housing providers in South Carolina and Georgia may have the right to assess certain charges due to the resident’s breach of the lease. However, housing providers should carefully review the lease and determine which remedy applies to the situation before assessing any charges. Although both the reletting charge and the buy-out fee may apply in situations involving an early lease termination, they operate differently and are not intended to be stacked together.
Understanding the distinction can help housing providers apply lease provisions consistently, avoid disputes or litigation, and ensure that resident balances are calculated correctly when an early lease termination occurs.
*The information provided in this article does not, and is not intended to, constitute legal advice; instead, all information in this article is for general informational purposes only. Information in this article may not constitute the most up-to-date legal or other information. Viewers of this material should contact their attorney to obtain advice with respect to any particular legal matter. No viewer of this material should act or refrain from acting on the basis of information in this presentation without first seeking legal advice from counsel in the relevant jurisdiction. Only your individual attorney can provide assurances that the information contained herein – and your interpretation of it – is applicable or appropriate to your particular situation. Use of, and access to, this article does not create an attorney-client relationship between the reader and Brownlee Whitlow & Praet, PLLC or any contributing law firms. All liability with respect to actions taken or not taken based on the contents of this article are hereby expressly disclaimed.