A significant change to Victorian rental legislation has now passed Parliament and received Royal Assent, with the Consumer Legislation Amendment Act 2026 introducing new limits on the amount of compensation a rental provider can claim when a tenant breaks a fixed-term lease.

While much of the attention surrounding the legislation has focused on changes to property sales, auctions and pricing information, there is another important change that Victorian property investors and landlords need to understand: break lease compensation.

For landlords, the key message is simple: a fixed-term lease will no longer provide the same level of financial protection against an early tenant departure that many property owners have traditionally expected.

What has changed for Victorian landlords?

The Consumer Legislation Amendment Act 2026 amends the Residential Tenancies Act 1997 to introduce a cap on compensation for lost rent when a renter ends a fixed-term residential rental agreement early.

The new provisions apply to fixed-term agreements of less than five years. The amount of compensation that can be awarded for loss of rent will be linked to how much of the lease remains at the time the tenant leaves.

Once the new provisions commence, the maximum compensation for loss of rent will be:

These are maximum amounts for loss of rent. They do not mean that a tenant can simply walk away from a lease without any other potential costs.

The legislation specifically provides that other costs associated with ending a lease early, including advertising and reletting costs, may still be recoverable where applicable. These costs can be agreed between the renter and rental provider or determined by the Victorian Civil and Administrative Tribunal (VCAT).

When do the new break lease rules start?

This is an important change for landlords.

The Consumer Legislation Amendment Act 2026 received Royal Assent on 8 September 2026, meaning the legislation has now been enacted and the new break lease compensation provisions are in place.

For landlords, this means the amount of compensation that can be recovered for loss of rent when a tenant ends a fixed-term lease early is now subject to the new limits outlined above.

The change represents a significant shift in how break lease arrangements are treated in Victoria and is something all property investors should be aware of when considering the level of protection provided by a fixed-term lease.

The Victorian Government has described the reform as a measure designed to place a cap on the cost of breaking a fixed-term rental agreement, while the legislation establishes the specific one-to-four-week compensation structure.

What does this mean for property investors?

For many landlords, the biggest change is the level of certainty a fixed-term lease provides.

Traditionally, landlords may have expected that if a tenant broke a lease, they could seek compensation for the rental loss incurred until a new tenant was found, subject to the landlord’s obligation to mitigate their loss.

The new legislation changes this position for qualifying fixed-term agreements by placing a statutory limit on the amount of loss-of-rent compensation that can be awarded.

This means the length of the remaining lease becomes particularly important.

For example, if a tenant leaves a 12-month fixed-term agreement with only three months remaining, the new rules would limit the loss-of-rent compensation to a maximum of one week’s rent once the provisions commence.

If a tenant leaves very early in a lease, with more than 75% of the agreement still remaining, the maximum loss-of-rent compensation would be four weeks’ rent.

This is a significant consideration for anyone who owns an investment property in Victoria, particularly investors who rely on consistent rental income to meet mortgage repayments and other property expenses.

A lease still matters, but it is important to understand what it protects

A fixed-term lease remains an important part of a tenancy agreement. However, landlords should not assume that having a longer lease automatically means they will be able to recover the full amount of rent remaining if a tenant leaves early.

In practical terms, a lease secures the tenancy, but it does not provide the same level of financial protection against an early departure that it once did.

The new legislation also makes it increasingly important for landlords to consider the broader risk management strategy surrounding their investment property.

This includes choosing the right property management company, having appropriate landlord protection in place, maintaining the property properly and ensuring the leasing process is handled professionally.

What about landlord insurance?

Another question we expect landlords to ask is how these changes will affect landlord insurance policies.

Insurance policies vary considerably, so landlords should check the terms of their individual policy and speak directly with their insurer or insurance adviser about how break lease claims may be treated under the new Victorian legislation.

It will be interesting to see how insurers respond to these changes and whether policies covering rental loss or tenant-related losses are adjusted over time.

For landlords, this is another reason not to assume that their insurance policy will automatically cover any financial loss associated with a tenant ending a lease early.

How can MPPG help protect your rental income?

At Mornington Peninsula Property Group (MPPG), we understand that rental income is an important part of your investment strategy.

Our Rental Guarantee is designed to protect your rental income when a tenant fails to pay rent, including situations where a tenant breaks their lease or leaves the property for another reason.

Unlike traditional landlord insurance, our Rental Guarantee forms part of our property management service. It is designed to provide landlords with greater certainty around their rental income and help protect cash flow when circumstances change.

Our Investment Property Management service is designed specifically around protecting and managing investment properties, with our Rental Guarantee forming part of our broader Property Managed offering.

We also provide a Landlord’s Guarantee for tenant-related property damage, along with Property Care and Compliance services to help protect the property itself and keep it properly maintained.

What should landlords do now?

If you own an investment property in Victoria, now is a good time to review how your rental income is protected.

Consider:

• Reviewing your current landlord insurance policy and checking what it covers if a tenant breaks their lease.
• Understanding the upcoming Victorian break lease compensation limits.
• Reviewing your property management arrangements and how quickly your agent can re-let a property.
• Considering the potential impact of vacancy and tenant turnover on your investment cash flow.
• Asking your property manager at MPPG about the rental guarantee and other protections against rental income loss.

The Victorian rental market continues to change, and legislation is placing greater importance on understanding the risks associated with owning an investment property.

At MPPG, our focus is not simply on collecting rent. We work with property investors to protect rental income, manage risk and build long-term wealth through property.

If you would like to know more about our Rental Guarantee, Property Managed service or investment property management, contact Mornington Peninsula Property Group to speak with our team.

Important: This article provides general information only and is not legal, financial or insurance advice. Landlords should obtain independent advice about how the legislation applies to their individual circumstances and check the commencement date of the new provisions before relying on the new compensation limits.