Leasing great business premises from a landlord can help a good business grow to become wildly successful. However, you may expand to become so successful that you outgrow your office and want to move to a larger space. But, what if your lease doesn’t expire any time soon? Are you contractually bound to stay in the property? This article will explain your options to end a 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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Can I Walk Away From a Commercial Lease?

Technically, you can move out of the office and into new premises. However, if you abandon the premises without plans in place with your landlord, you will be legally responsible for:

  • any rent which is due for the remainder of the lease term;
  • the make good of the property; and
  • the landlord’s costs in re-letting the property.  

For example, you rented the property for $1,000 a week, but the landlord could only find a new tenant who will pay $800 a week. Therefore, you will be liable for the rental shortfall ($200) over the next two years. In this example, this will cost you over $20,000.

Therefore, you should consider one of the other exit strategies set out below.

Negotiating an Early Exit

A better alternative to abandoning the premises is to approach the landlord honestly and transparently to negotiate an early exit from the property.

In this case, you should ask the landlord to advertise for a new tenant to occupy the property and agree to pay any advertising costs. Then, when the landlord has found a new tenant, move out. Provided that the landlord agrees to your proposal, this will limit your exposure to the time it takes to find a new tenant.

If you go down this path, ensure that you enter into a deed of surrender of lease with your landlord to document your agreement. This will end the lease formally and ensure that the landlord cannot come back to recover funds from you if the new tenant does not work out.

Assigning the Commercial Lease

As an alternative to negotiating an early exit, you could find someone to assign the lease to. Assignment means transferring the lease to a third party, who then substitutes your place as the tenant. 

Your lease agreement will likely have clauses in it related to assignment. Therefore, it is essential to consider those clauses before you commence any proposed assignment. Usually, a landlord cannot unreasonably prevent an assignment. However, they will need to be satisfied that the person that you’re proposing to assign the lease will be able to meet their leasing obligations.

When Can a Landlord Refuse Assignment?

While it will depend on your specific assignment clause, some examples of when a landlord may refuse assignment include when:

  • the proposed new tenant has not provided adequate references or financial information to show that they can pay their rent;
  • the use proposed by the new tenant will not fit the permitted use clauses of the lease or the uses allowed by the zoning of the premises;
  • there is evidence that the proposed new tenant will use the premises for an illegal purpose; or
  • the parties have not followed the assignment procedure provisions in the lease.

Subletting

Subletting to a third party is another option for ending your lease. Unlike an assignment of lease, you still retain control of the lease when you sublet it. The person who you are subletting to will pay you rent and outgoings, which you will then pay to the landlord. While this helps you by paying the rent, it means that you are still legally responsible for:

  • any damage to the premises;
  • make good provisions; and
  • if the subtenant fails to pay rent.

If you do wish to sublet, you will need to check your lease to see if you legally can. You should also check whether you need the landlord’s consent to do so. 

Can I Leave the Premises if the Landlord Has Breached the Lease?

If the landlord has breached the lease, it is worth considering the terms of your lease surrounding the landlord’s obligations to you.

You should always be aware of your rights under a lease. In particular, you should know your rights to terminate the lease when the landlord has breached it.

For example, they may have breached the lease by failing to maintain the premises or breaching your quiet enjoyment of the land.

However, rights to leave the lease are not commonly included in lease agreements. Therefore, you should seek legal advice before leaving the premises to ensure that you don’t face any serious legal consequences.

Key Takeaways

If you want to end your commercial lease early, you need to review the terms of the lease and consider your options. There a number of ways that you may be able to exit the lease early, including:

  • negotiating with the landlord;
  • assigning the lease to another; or
  • subletting the premises.

However, these alternatives are not foolproof. You should always carefully consider the terms of your lease. If you have any questions about exiting a commercial lease early, contact LegalVision’s leasing lawyers on 1300 544 755 or fill out the form on this page.

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