Business is unpredictable and subject to many external influences. It is hard to know how long to commit to a lease, and you may find yourself in a position where the lease is no longer working for you. You might need a larger premises, or maybe even a smaller one. This article explains some options to consider if you want to end your lease early. 

1. Mutual Consent to Surrender

A lease is a contract, and you cannot walk away from it because it does not suit your needs. However, you can walk away if the landlord agrees. Here, you can contact your landlord and ask if they would be prepared to end the lease early. This is known as a surrender of lease.

Keep in mind that this is a commercial negotiation, and the landlord may outright refuse your request to surrender your lease before your term expires.

If you are successful in reaching an agreement with your landlord to surrender your lease, you should enter into a deed of surrender. This deed will explicitly release you from all obligations under your lease from the date of surrender.

2. Early Termination Clause

Sometimes, your lease agreement will have an early termination clause (or break clause). The early termination clause will set out the situations that may allow you to end the lease early. It may also provide specific dates during the lease where you can elect to end the lease early.

For example, the early termination clause may specify that you can only break the lease in the last year of your term.

However, it is very rare to find this type of clause in a lease. This is not a standard clause and will only be included if you negotiated it in before signing the lease. Generally, the inclusion of a clause of this nature will have an economic effect in terms of the: 

  • amount of rent you have to pay; or 
  • incentives on offer during the lease negotiation.

3. Lease Transfer or Assignment

A transfer or assignment of a lease occurs when you transfer your rights and obligations under a lease to a new tenant. This process involves finding a replacement tenant.

Usually, you will only be able to assign your lease with the landlord’s consent. If you have a retail lease, the relevant retail legislation for your state or territory will also govern the assignment process. Therefore, it is essential that you check the terms of your lease and, if applicable, the relevant legislation so that you are aware of what you need to do to assign your lease.

If your landlord consents to the assignment, you will need to enter into two deeds:

  1. one which relates to the assignment of the lease; and 
  2. the other relating to the landlord’s consent.

Sometimes, these items are contained in the one deed and all parties sign it. It is common practice for the landlord to prepare the assignment of lease documents and for you to pay the landlord’s costs for doing so.

An important thing to be aware of is that, for a commercial lease, you will not be released from your legal responsibilities under the lease even after you have assigned the lease. If you have a retail lease, your relevant retail legislation will determine if you are released from legal responsibilities on assignment or not.

4. Sub-Letting the Premises

The final option is to sublet the property to a third party. A sublease occurs when you rent part or the whole of the property you are leasing to a secondary tenant. Your lease will dictate whether both of these options are available to you. Subletting part of the premises is a good option if your space is too big. It will help you manage your rent obligations, as a subtenant will pay you rent. 

It is critical to note when you sublet your premises is that you will still have the legal responsibility as the tenant under the lease. This means you continue to be liable under the lease until the end of the term. This includes the space that the subtenant occupies.

The landlord will need to consent to any sublease arrangements. You and the subtenant will also need to prepare and sign a sublease.

The Costs of Early Termination

Your lease is a legally binding contract between you and your landlord. This means that you must keep paying rent and other costs under the lease until the end of your lease term. You cannot simply walk away from the premises unless you have agreed with the landlord to end the lease early.

You could face having to pay your landlord compensation if you fail to pay:

  • rent;
  • outgoings; or
  • other leasing costs.

Furthermore, you may have to pay compensation for the costs that go into advertising the property and finding a new lessee. It is therefore crucial that you let the landlord know as soon as possible that you would like to end the lease and try to find an amicable solution.

Key Takeaways

As a tenant in a commercial lease, it is rarely possible to break a lease early without the agreement of your landlord. Therefore, you should consider looking at other options, such as:

  • assignment of the lease; or
  • subletting the premises.

These options will limit your costs under the lease, even if they do not limit your legal responsibilities. If you are looking to get out of your lease obligations early and are not sure whether or not you can, contact LegalVision’s leasing lawyers on 1300 544 755.

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Lianne Tan
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