As your business grows, you may find that your existing premises soon becomes unsuitable for your company. While your enterprise’s growth is a sign of success, it will certainly present some challenges including how to leave your current site and move to another. If your business’ changing requirements don’t align with the terms of your lease, you’re likely assessing your options so that your company can continue to operate efficiently. Below, we look at how you can break a commercial lease including early termination clauses and assigning your lease.
How Can I Terminate My Commercial Lease?
The legal obligations created by a commercial lease require you to pay rent and outgoings as they come due until the lease expires. You can choose just to walk away from these requirements but don’t be surprised if an irate landlord chases your company to its new office. Alternatively, you have a few other options including asking the landlord (politely!), using an early-termination clause, assigning the lease, subletting the premises, examining the lease agreement to see if the landlord has breached their obligations, or just waiting until the lease expires.
Ask Your Landlord
You can always first ask the landlord if they want to end the lease. If they agree to terminate the Agreement, then the obligations for your enterprise will end. Although this would be an easy way to resolve your issues, it’s unlikely to happen given the landlord would lose a tenant and the income from having their property occupied.
Early Termination Clauses
These clauses will set out certain triggers that can lead to early termination of your obligations. The terms and requirements of these clauses will vary so you should confirm whether your Agreement includes them and if so, what they require. Given the downsides for the landlord, it’s very unlikely they’ll be in your commercial lease agreement unless you negotiate their inclusion.
Assigning a Lease
If you want to end the lease, you could consider finding a suitable replacement and then assign (transfer) the lease to them. Your Agreement may contain particular requirements relating to assigning the lease so it’s worthwhile reading them through to understand what arrangements you should make.
You will likely require your landlord’s consent before assigning the lease. A landlord is usually unable to refuse an assignment unless it is reasonable to do so. Justifiable reasons for withholding consent include concerns that the new tenant:
- Doesn’t have sufficient supporting references;
- Hasn’t demonstrated an ability to meet their financial obligations;
- Will use the premises for an unsuited or illegal purpose; or
- Didn’t follow the procedure in the lease Agreement to make the transfer.
You can use your existing lease to inform a suitable business of their obligations before a transfer. Notably, a landlord cannot:
- Impose new obligations;
- Remove rights that your business had; or
- Create a new, and unreasonable, condition that the new tenant must comply with.
Subletting the Premises
If you’re unable to assign the lease, you may consider subletting the premises to another business. You may also require the consent of your landlord before the subtenant can occupy the premises – this will depend on the terms of your Agreement. You should be wary of subletting as your enterprise will remain responsible to the landlord for all obligations under the lease, even when another business occupies the premises.
Breach of the Lease Agreement by the Landlord
You and your landlord are both subject to obligations. If your landlord seriously breaches the lease Agreement, then you may have grounds to terminate. The reasons for termination can vary wildly and will depend on the obligations your Agreement contains.
Wait it Out
It’s easier said than done simply to wait out a lease Agreement. If your current premises is hampering your business, you would unlikely be satisfied serving out the remainder of the term – particularly given that commercial lease agreements can often last for 10 or 20-year terms. However, if it is starting to approach the end, and you’ve tried all the above options, then it may be the only one left for your enterprise.
As your enterprise grows, its requirements will change, and the premises you’re currently located at may no longer be suitable. Whether it be your head office, factory, store, or yard, your current commercial lease agreement may be hindering the operations of your enterprise. If you’re looking to move to a new premises, you should consider negotiating with your landlord to end the lease early or trigger an early-termination clause. If you’re unsuccessful, you could consider assigning the lease or subletting the premises to a new business. If this fails, and your landlord has breached their obligations under the lease, you may be able to terminate the lease. Questions? Get in touch with our commercial leasing lawyers on 1300 544 755.