Are NYC landlords going to get stricter about letting you break a lease?

Some brokers and leasing agents are seeing an increase in lease break requests and expect landlords in New York City to make it more difficult for tenants to break their leases. 

Adam Frisch, senior managing director of leasing at Mantus Real Estate, says with the exception of the pandemic, he’s getting more calls than ever about lease breaks due to layoffs and relocations. “I’m hearing from my tenants that they want to go,” he says. 

Kunal Khemlani, an agent at Corcoran, is also helping tenants dealing with layoffs and relocations as well as breakups. “We have more volatility in the job market, so there’s volatility in relationships,” he says.

Frisch says there’s “no question” landlords are going to get tougher on lease breaks. Not only can unexpected vacancies result in turnover costs like repainting, but owners are seeing operating costs increase due to inflation as well as local law compliance and it’s testing their tolerance for lease breaks. “Every penny is going to count as [landlords'] operating expenses continue to go up,” Frisch says. 

As a renter in NYC, here’s the rule to remember when it comes to lease breaks: the landlord has a duty to mitigate damages. This means if you need to break your lease early, your landlord must do all they can to find another tenant to replace you.

Timing your lease break may be key

Khemlani noticed landlords taking a tougher stance on lease breaks last year. 

Although landlords are required to try to find a replacement tenant, he says they often “stonewall this process” by not responding to requests.

If you plan on breaking your lease, the advice from Frisch is to do so as soon as possible. He anticipates a drop in demand for rentals in the coming months due to layoffs and worker relocations. "This may be one of the few years where the spring and summer is less competitive than the winter," he says. If you break your lease and the apartment is assigned or sublet for less than the rent you were paying, you may be on the hook for the difference between your rent and the new rent.

Not everyone agrees the rental market is slowing and the data suggests otherwise. In February, Manhattan’s net effective median rent, which includes concessions, rose annually for the 18th straight month and was the highest recorded net effective median rent for a February. 

“It's still a strong rental market,” Khemlani says, largely because higher mortgage rates are keeping would-be buyers in rental apartments. Although, he adds "volatility in the job market"—job losses and transfers—is one reason why lease break requests persist. 

Typically, you are in a better position to break a lease in NYC in the more competitive summer months than in winter. “Right now the rental market is surprisingly strong, so most parties seem relatively happy,” says Phil Horigan, founder of short-term rental site Leasebreak. 

Lease break clauses are not common

Most rental contracts agreements do not include a lease break clause. 

“We expect tenants to live up to their promises,” says Arik Lifshitz, CEO of DSA Property Group, a property management and development firm. “Sometimes life sucks, but that doesn’t relieve us of our contractual burdens,” he says. And he points out that a rental contract term of one year is a relatively short period of time. 

However, Frisch says there's no doubt landlords will get stricter about lease breaks. "We’ll start seeing lease break clauses that say you have to pay the security deposit, plus two months of rent if you want to break your lease," he says. 

Are penalties for lease breaks allowed?

Some renters appreciate having the process clarified—with the financial risk clearly stated—but it remains to be seen whether stricter penalties are enforceable; they are at odds with the landlord’s duty to mitigate damages for the tenant. "A clause stipulating a three-month penalty to break a lease likely wouldn't be enforceable," says Allia Mohamed, CEO of the rental listing and building review site openigloo. 

In addition, under the law your security deposit must be paid back to you within 14 days of the end of the tenancy and there are financial penalties for landlords who don’t meet these rules. If landlords could keep the security deposit when a tenant broke the lease, it would reduce the incentive for a landlord to mitigate damages by trying to re-rent the place. 

Horigan questions whether penalties are allowed under the law but does wonder if landlords may start to include strict break clauses with penalties to see what's possible. "Some landlords may try it, others may not take the chance," he says, adding it’s less to do with the competitiveness of the rental market and financial pressures on owners and more to do with the evolution of landlords' approach to lease breaks. 

“Landlords have certainly pushed the limits but the tenant has to understand the onus is on them,” Khemlani says. He emphasizes how important clear communication is between tenants and landlords when it comes to lease breaks. 

The number of queries or comments about stricter lease break clauses on openigloo hasn’t increased in recent weeks, but Mohamed says she does see lease clauses around abandonment. This is where the tenant leaves the apartment before the end of the lease term without telling the landlord. 

"In many cases, these abandonment clauses may stipulate a one-month rent penalty—or security deposit—for doing so," she says. 

Her advice to anyone entering a rental agreement in NYC is to read the lease "very carefully and see if anything seems off base." If you do need to break a lease for any reason, you should communicate clearly with your landlord, give plenty of notice, and work with management to come up with a solution.

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