You are contractually bound to continue paying the rent on a commercial lease until it ends.  If you don’t want to then there are some options, but they all come with significant risks.

Can’t I just walk away from a commercial lease?

Yes…but then you will be liable for any rent which is due under the lease for the remainder of its term.

What is an assignment? Can I assign a commercial lease to someone else?

Assignment really just means transferring the lease to another party.  Often assignment doesn’t just occur in isolation, assignment often occurs with the sale of the business itself.

The lease itself might have conditions in it related to assignment, so check those conditions.  Generally, a landlord cannot unreasonably prevent an assignment, but they will likely need to be satisfied that the person to whom you’re proposing to assign the lease will be able to meet its obligations under it.

When can a landlord refuse assignment?

The onus is always on the tenant to show that the landlord is acting unreasonably.

Some examples of when a landlord will most likely be legally allowed to refuse assignment, include:

  • The proposed new tenant has not provided sufficient references;
  • The proposed new tenant does not have the financial capacity to meet its obligations under the lease
  • The proposed new tenant’s intended use will not fit the permitted use clauses of the lease or the uses permitted by the zoning of the premises;
  • There is evidence that the proposed new tenant will use the premises for an illegal purpose;
  • The proposed new tenant does not provide sufficient paperwork to the landlord;
  • The parties have not followed the assignment procedure provisions in the lease.

If the landlord agrees to the assignment they may not:

  • Impose a new obligation on the proposed new tenant;
  • Withdraw from the proposed new tenant a right originally conferred on the existing tenant; or
  • Impose an unreasonable condition on the proposed new tenant as a condition for consenting to the assignment.

What if my landlord is blocking my attempts to assign a lease?

You should consider speaking to a leasing lawyer or getting online legal advice as a dispute over a commercial lease can be quite complicated.

Take advantage of a breach by your landlord

You should be aware of your rights under a lease, in particular your rights to terminate the breach (e.g. for breach by the landlord).  If you want to end your lease early then doing so in circumstances where you have a right to under the terms of the lease will save you money.

Subletting

If you want to end your lease early but cannot assign it then you should consider subletting the premises to a third party.  Unlike an assignment, a sublease means you still retain control of the lease and the person who you are subleasing to will pay you rent and outgoings, which you will then pay to the landlord.  You will however need to check your lease to see if you can sublet it and you may need the landlord’s consent.  Bear in mind that even though you aren’t occupying the premises the lease is still in your name and you will therefore still be directly liable to the landlord for any damages or unpaid rent (even if your subtenant causes the damage or doesn’t pay rent to you).

What if my landlord won’t give back my bond?

The landlord is obliged to give back your bond if you have not breached any terms of the lease.  If your landlord is not paying your bond you should contact a leasing lawyer immediately for advice.

Conclusion

Getting out a commercial lease agreement can be tricky. Seek legal advice before taking action.

Lachlan McKnight

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