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Business is unpredictable and subject to many different factors. There are various reasons why you, as a tenant, might want to end your commercial lease. However, you have likely agreed to a certain lease term over the commercial property within a legally binding contract. This means it is not as simple as just walking away and returning the keys to the landlord. This article will explore five options that you can consider if you want to end your commercial lease early.

How to End a Lease Factsheet

A factsheet that sets out the three ways to end a commercial lease in Australia: surrendering your lease, assigning it or subletting it.

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1. Surrender the Lease

One option for getting out of your commercial lease early is to approach your landlord and request to surrender the lease. A surrender of lease is when both you and the landlord agree to end the lease. The landlord will have no legal obligation to agree to the surrender if you try to negotiate it with them. The terms of the surrender are also open to negotiation. Often, you may need to pay a surrender fee to the landlord in order to compensate for breaking the lease agreement.

If the landlord agrees to surrender your lease, you should ensure that you document this in a deed of surrender. If you have registered your lease on the title of land, you should also ensure that you register the appropriate surrender of lease form. This form will remove your lease from the certificate of title to the land.

The benefit of a lease surrender is that it will bring an end to your legal obligations. However, if the landlord agrees to surrender your lease, you will often have to pay their legal costs.

2. Early Termination Clause

Some lease agreements will contain an early termination clause (commonly called a break clause). While early exit clauses are rare, they can be negotiated into a commercial lease.

Early termination clauses tend to be very specific. For example:

The tenant may terminate early only if they enter into a new lease of another premises in the building.”

Or, “the tenant may terminate early only after the first five years of the lease.

As the business owner, you must negotiate these clauses before you sign the terms of the lease. There may be some costs included as part of the early termination clause. You should expect that you will need to pay any of the landlord’s costs associated with ending the lease early. This might include legal costs to review the termination of the lease or the payment of rent while your landlord finds a new commercial tenant.

3. Assignment of Lease

Assigning a lease is when you transfer your rights and obligations under the lease to a new tenant. This will enable you to get out of your commercial lease by finding someone else to take the lease on.

If you wish to assign your lease, you will need the consent of your landlord. Your lease might spell out what requirements you need to satisfy before the landlord will agree to assign the lease to a replacement tenant.

Some examples of these types of conditions are that:

  • the new tenant cannot change the permitted use of the leased premises;
  • you must provide evidence of the new tenant’s financial strength and business skills;
  • you must not breach your lease obligations; and
  • the new tenant must be willing to give a personal guarantee.

If the landlord consents to the assignment of your lease, you will need to document this in a deed of assignment. There will also usually be a deed of consent to assignment, that details the landlord’s consent.  You will likely have to pay the landlord’s legal costs for consenting to the assignment of the commercial lease.

It is important to note that an assignment is very different to a surrender. The lease continues under an assignment; the tenant is just different. You will not be completely released from your obligations under the lease if you assign it to someone else.

For leases governed by retail legislation, there are specific steps that you must take before you are released from your legal responsibilities. In leases that are not governed by the retail legislation, you must negotiate this release of your responsibilities with the landlord. If you do not negotiate a release, you continue to be legally responsible for the actions of the new tenant under the lease. If the new tenant breaches the lease, the landlord may be able to make a legal claim against you.

4. Subletting the Premises

Another option you might consider is subletting the premises to a subtenant. You can choose to either sublet the whole premises or only a portion of the premises. This could be a good option if you wish to remain on the premises but reduce your costs, as the subtenant will pay a portion of the rent.

For example, a company with 100 employees might lease a space fit for 120 people. They could sublet the extra room to a small business with up to 20 employees, adding a new tenant to the lease agreement.

Subletting the premises will also require the landlord’s consent. Like with an assignment, your lease will also include conditions that you must satisfy before the landlord consents. These conditions are generally very similar to the ones surrounding an assignment.

It is important to note that if you choose to sublet, this option will not release you from your obligations under the lease. While the subtenant will be legally responsible to you, you will still be legally responsible to the landlord for the entire lease.  You should ensure that any sublease is formally documented and requires the subtenant to compensate you if their actions cause you to breach your original lease.

Similar to a lease assignment, you will usually have to pay the landlord’s legal costs for consenting to a sublease arrangement.

5. Licensing

The final option is to licence your premises. A licence does not allow the other party to use the licensed area exclusively. So, if you plan to share parts of the premises with the other party, a licence will be the right form of contact.

For example, a licence will be best if you wish to share:

  • meeting rooms;
  • printing areas;
  • reception desks; and
  • kitchens.

However, if you intend to put up a wall and divide the premises between the two businesses, a sublease may be more appropriate.

A licence will also require the consent of the landlord and may include similar conditions to an assignment or sublease. As with a sublease, licensing your premises will not end your legal responsibilities under your lease. Also, you will be legally responsible for paying the landlord’s legal costs associated with consenting to a licence.

Key Takeaways

A lease agreement is a binding contract that you cannot walk away from without consequences. If you find yourself in a situation where you no longer want to lease your premises, you need to consider your options. In rare circumstances, you may be able to either end the lease completely or share the space to reduce your financial obligations. It is essential to be aware of the terms of the lease and when your legal responsibilities end under the lease. Just because you are not occupying the premises does not mean that you can walk away from your obligations under the lease. If you are looking for legal advice to help you get out of your commercial lease, contact LegalVision’s leasing lawyers on 1300 544 755 or fill out the form on this page.

Frequently Asked Questions

Can I get out of a retail shop or commercial lease early?

Commercial and retail leases are legally binding contracts between you and the landlord of a premises for a fixed period of time. As a tenant, you cannot simply end your lease at any time you wish. But, if you no longer want to use your premises and your lease has not yet ended, you have three options, which include surrendering your lease, assigning it or subletting it. A leasing lawyer can assist you with determining what option is best for you.

How do I surrender a lease?

A surrender of a lease is where both you and your landlord agree to end the lease before the end of your lease term. If you choose to surrender your lease, you will be released from your legal responsibilities on, and from the date of, surrender.

What does assigning a lease mean?

Assigning your lease means that, with your landlord’s consent, you find a new tenant to take over your lease. This means that the new tenant will take over the premises and pay the rent.

How do I sublet a lease?

Similar to an assignment, subletting your lease allows you to bring in a new tenant who can occupy either a portion of or all of the premises. You will also need to obtain the permission of your landlord if you wish to sublet a portion or all of your premises.

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