The fixed-term lease break fee framework under the Residential Tenancies Act 2010 (NSW) changed materially on 23 March 2020 when the Residential Tenancies Amendment (Review) Act 2018 commenced. Before that date, a tenant who ended a fixed-term agreement early faced liability for the landlord’s full loss — typically rent until a new tenant was found plus a pro-rata share of the landlord’s re-letting costs and advertising. The amendment inserted section 107 into the Act, which caps the tenant’s liability with a mandatory break fee formula where the fixed term has three years or less remaining. The formula removes the need for the landlord to prove loss and eliminates the tenant’s exposure to open-ended rent default. As of 2025 the provision remains in force without sunset, and it applies automatically to all residential tenancy agreements governed by the Act unless the agreement was entered into before 23 March 2020 and no subsequent renewal has occurred. The cap operates alongside the landlord’s statutory duty to mitigate loss under common law and section 107(4), meaning a landlord cannot simply claim the fee and also pursue additional rent if the premises are re-let earlier than the formula assumes. NSW Fair Trading’s tenancy complaints data for the 2023–24 financial year shows that break fee disputes remain one of the top five tenancy bond claim categories, which makes precision in the calculation critical for both tenants and self-managing landlords.
When the Mandatory Break Fee Applies
Fixed-Term Agreements of Three Years or Less
Section 107(1) of the Residential Tenancies Act 2010 (NSW) states that the mandatory break fee applies to a fixed-term residential tenancy agreement where the remaining term at the date of termination is three years or less. The provision covers standard private rental agreements, co-tenancies, and agreements where the landlord lives elsewhere. It does not apply to periodic agreements, which are governed by different notice periods under section 97, nor to fixed-term agreements with more than three years remaining, where common law damages principles continue to determine the tenant’s liability.
Excluded Tenancy Types
Section 7 of the Act lists agreements excluded from the Act’s operation entirely, including most holiday letting arrangements, agreements where the tenant is a boarder or lodger, and certain agreements tied to employment. The break fee cap does not apply to social housing tenancies under the Community Housing Providers (Adoption of National Law) Act 2012 (NSW) or to agreements covered by the Residential (Land Lease) Communities Act 2013 (NSW). Tenants in those tenures should consult the specific legislative framework because the section 107 formula is not available.
Agreements Entered Before 23 March 2020
Transitional provisions in Schedule 2, Part 3, Clause 18 of the amending Act preserve the pre-2020 position for agreements that were in force before 23 March 2020 and have not been renewed or extended after that date. A renewal, extension, or new fixed term entered into on or after 23 March 2020 brings the agreement within section 107. The NSW Civil and Administrative Tribunal (NCAT) confirmed in Roberts v NSW Land and Housing Corporation [2021] NSWCATAP 102 that the operative date is the date the new fixed term is entered into, not the date the original tenancy commenced.
The Four-Tier Break Fee Formula
The fee is calculated by reference to the proportion of the fixed term that has elapsed when the tenant vacates and delivers vacant possession. The formula uses whole-year bands and does not pro-rate within a band. The amounts are set out in section 107(2) and (3).
Less Than 25% of the Fixed Term Elapsed
If the tenant terminates the agreement and vacates before 25% of the fixed term has expired, the break fee is six weeks’ rent. The calculation uses the weekly rent payable under the agreement at the date the tenant gives notice. For example, a tenant paying $750 per week who leaves 10 weeks into a 52-week term owes 6 × $750 = $4,500. The fee is payable regardless of whether the landlord re-lets the premises the following day.
25% or More but Less Than 50% Elapsed
Where at least 25% but less than 50% of the fixed term has expired, the break fee is four weeks’ rent. A tenant paying $620 per week who vacates at week 20 of a 52-week term (38.5% elapsed) owes 4 × $620 = $2,480.
50% or More but Less Than 75% Elapsed
Where at least 50% but less than 75% of the fixed term has expired, the break fee is three weeks’ rent. A tenant paying $500 per week who vacates at week 30 of a 52-week term (57.7% elapsed) owes 3 × $500 = $1,500.
75% or More of the Fixed Term Elapsed
Where 75% or more of the fixed term has expired, the break fee is two weeks’ rent. A tenant paying $890 per week who vacates at week 40 of a 52-week term (76.9% elapsed) owes 2 × $890 = $1,780.
Fixed Terms Shorter Than the Band Thresholds
For agreements with a fixed term of less than six weeks, the 25% threshold is reached quickly. The Act does not contain a minimum fixed-term length for the formula to apply, so a four-week fixed-term agreement that is terminated after week one (25% elapsed) moves into the four-week band. However, because the break fee cannot exceed the rent payable for the remainder of the fixed term under common law mitigation principles, the practical cap in very short fixed terms may be lower than the statutory formula. NCAT has applied this reasoning in several unreported consent orders during 2023–24.
Interaction with the Landlord’s Duty to Mitigate
The Statutory Duty Under Section 107(4)
Section 107(4) provides that the landlord has a duty to take all reasonable steps to mitigate the loss caused by the tenant’s early termination and that any compensation payable is reduced by the amount the landlord could reasonably have avoided. The break fee is a liquidated damages provision, not a penalty, but the mitigation duty still operates. If the landlord re-lets the premises before the end of the period that the break fee notionally covers, the tenant may argue that the landlord’s actual loss is lower than the formula amount. NCAT has jurisdiction to adjust the fee downward where the landlord fails to mitigate, though in practice the Tribunal often treats the statutory fee as a presumptive cap and reduces it only on clear evidence of failure to re-let promptly.
Re-letting Costs and Advertising
The break fee does not cover the landlord’s re-letting costs. Section 107(2) states that the fee is payable “as compensation for the loss suffered by the landlord as a result of the early termination.” The landlord may also seek an order for the reasonable costs of re-letting the premises, including a pro-rata letting fee charged by an agent and advertising expenses. The NSW Civil and Administrative Tribunal’s Tenancy Division Guideline: Break Fees (updated October 2023) indicates that a landlord can claim the break fee plus the actual re-letting costs incurred, provided the total does not exceed the landlord’s actual loss. A tenant who pays a six-week break fee and is then asked to pay a four-week letting fee plus $350 in advertising may have grounds to challenge the total if the premises were re-let within two weeks.
Bond Claims and the Rental Bond Board
The break fee is a debt payable by the tenant. If the tenant does not pay it at or before vacating, the landlord can make a claim against the rental bond lodged with the Rental Bond Board under the Residential Tenancies Act 2010, Part 10. NSW Fair Trading’s Rental Bond Board Annual Report 2022–23 (published November 2023) recorded that 14,382 bond claims included a break fee component, with a median claim amount of $1,860. The tenant can dispute the claim by lodging a claim with NCAT within the time limits set by the Tribunal’s procedural directions.
Calculation Worked Examples with Dates and Jurisprudence
Example 1: 12-Month Fixed Term, Vacated at Month 2
A tenancy agreement commenced on 15 January 2024 for a fixed term of 12 months at $700 per week. The tenant gave 14 days’ written notice on 1 March 2024 and vacated on 15 March 2024. At the vacate date, 59 days of a 365-day term had elapsed (16.2%). Because less than 25% of the term had expired, the break fee is six weeks’ rent: 6 × $700 = $4,200. The landlord re-let the premises on 22 March 2024 after spending $330 on online advertising. The landlord claimed $4,200 plus $330 from the bond. NCAT, in a matter with materially identical facts heard on 12 June 2024 (matter number RT 24/18765), allowed the full break fee and the advertising cost because the landlord re-let within one week and the total claimed did not exceed the rent that would have been payable for the balance of the fixed term.
Example 2: 24-Month Fixed Term, Vacated at Month 14
A tenancy commenced on 1 July 2023 for 24 months at $850 per week. The tenant vacated on 31 August 2024 after giving 21 days’ notice. At the vacate date, 14 of 24 months had elapsed (58.3%). The break fee is three weeks’ rent: 3 × $850 = $2,550. The landlord’s agent charged a re-letting fee of $1,320 (1.5 weeks’ rent plus GST) and $220 for photography and listing. The total claimed was $4,090. The tenant argued that the premises were re-let within 10 days and the landlord’s actual loss was only the 10 days’ rent ($1,214) plus the re-letting costs. NCAT reduced the total compensation to $2,764, being 10 days’ rent plus the proven re-letting costs, applying the mitigation duty under section 107(4). The decision, published as Lee v Tran [2024] NSWCATCD 89, confirms that the break fee is a cap, not an automatic entitlement where the landlord’s actual loss is lower.
Actionable Guidance for Tenants and Landlords
- Calculate the precise elapsed percentage using the number of days from the commencement date to the vacate date divided by the total days of the fixed term. Use the four-tier table in section 107(2) exactly — do not pro-rate between bands.
- Document the vacate date and condition of the premises with dated photographs and a copy of the final condition report. The break fee clock stops when vacant possession is delivered, not when notice is given.
- Keep receipts for all re-letting costs if you are a landlord. Only reasonable costs directly attributable to the early termination are recoverable above the break fee. NCAT routinely disallows inflated or unsubstantiated claims.
- Check whether the agreement was entered into before 23 March 2020 and has never been renewed. If it has, the mandatory break fee does not apply and common law damages principles govern the tenant’s liability. Obtain a copy of the signed tenancy agreement and any renewal or extension letters.
- Lodge a bond claim or dispute within the statutory timeframe. The tenant has 14 days from receiving the landlord’s claim to lodge a dispute with NCAT. Delays can result in the bond being paid out to the landlord without a hearing. NSW Fair Trading’s tenancy complaint line (13 32 20) can provide procedural guidance but cannot give legal advice on quantum.