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As a tenant, your lease sets out your rights and obligations. Further, the lease will include details of the term (duration) of your lease and any options to renew that may be available. By signing the lease, you commit yourself or your business to pay rent throughout the lease term in exchange for the right to occupy the premises. Often, you may find it difficult as a tenant to end a commercial lease earlier than the expiry of the lease term. However, there are specific circumstances when a tenant may be able to end a commercial or retail lease early. This article discusses some circumstances where a tenant can end a commercial lease in Western Australia.
A factsheet that sets out the three ways to end a commercial lease in Australia: surrendering your lease, assigning it or subletting it.
Lease Agreement
The lease agreement might contain specific clauses allowing a tenant to break their lease early. We explore these clauses in further detail below.
Early Termination Clause
An early termination clause in a lease agreement will permit the termination of the lease before its expiry date. Not all commercial leases will include this clause. Although, it is crucial to understand if your lease allows for early termination by the tenant or the landlord. Typically an early termination clause will specify situations or circumstances that would warrant an early termination of the lease and if there are any conditions upon being able to terminate the lease early.
Breach of Agreement Clause
If there has been an essential or fundamental lease term that the landlord or another party breaches, you may be able to seek damages for the breach. Also, suppose the commercial lease in question is a retail lease covered by relevant state or territory legislation. In that case, the legislation itself may also permit a tenant to obtain damages in some instances.
The common law also determines specific circumstances when a contract may be void. This may include a repudiation of the lease terms or the provision of misleading or false statements that induced a party to agree. If you believe there has been a breach of contract, you should speak to a lawyer specialising in commercial leases. They can determine whether you can terminate a lease according to a breach of contract.
Mutual Consent
A request to surrender the lease also requires the landlord’s consent. However, the landlord will have no legal obligation to agree to the surrender, and both parties must negotiate the terms of the surrender. Additionally, in many cases, the tenant must pay the landlord a surrender fee to compensate for breaking the lease agreement.
Further, both parties will need to enter a deed of surrender and release to surrender the lease formally. However, this process is only sometimes documented within the lease and will involve a commercial negotiation between the parties.
Lease Term Expiry Clause
If a tenant’s original fixed lease term has ended and the lease agreement is rolling monthly, they can formally notify their landlord of their intention to end the lease. The agreement will specify the correct notification procedure for the tenant, including when and how they must notify the landlord.
Assigning the Lease
The ability to assign the lease is a standard clause in commercial or retail leases. This means that you can transfer the lease from one tenant to another. For example, you may do so if you sell your business.
Western Australian law usually confirms that a lease transfer can only be withheld when there are reasonable grounds. For example, a reasonable ground could be that the incoming tenant does not have the economic viability to pay the rent for the length of the term or that the incoming tenant intends to use the premises in a way other than its intended use.
Additionally, a Deed of Assignment of Lease will be required upon assignment of the lease to the new tenant.
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Subleasing
Similar to assigning the lease, a tenant can find a sublessee for occupying the premises. 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. The commercial or retail lease will usually outline the right to sublease. Additionally, the landlord will need to approve the sublease.
Although the sublessee will take over the physical occupation of the premises, you are still bound by the terms of the lease as the tenant. This means that you will be responsible for fulfilling the legal obligations of the lease, including paying rent in the case of a sublessee’s default or damage to the premises.
Failure to Comply With Legislation
Tenants and landlords must comply with the terms of the Commercial Tenancy (Retail Shops) Agreement Act 1985 (WA), which governs retail leases in Western Australia.
According to this Act, tenants must receive the disclosure documents, including the:
- disclosure statement; and
- tenant guide.
Additionally, the tenant can terminate the lease in writing if it is within six months after the commencement of the lease and if:
- the landlord does not provide these documents;
- The documents are incomplete; or
- The documents contain false or misleading information.
However, this is a limited right, and you should seek legal advice if you wish to terminate your lease.
Key Takeaways
Entering a lease is a big commitment. Further, the circumstances for terminating the lease from the tenant’s perspective are rarely straightforward. Indeed, if you abandon your obligations under a lease, you may be liable to pay damages for outstanding rent or rent until the landlord locates a new tenant.
If you are considering entering a lease agreement or ending an existing one, our experienced leasing lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.
Frequently Asked Questions
An early termination clause in a lease agreement will permit the termination of the lease before its expiry date. Typically, it will specify situations or circumstances that would warrant an early termination of the lease and if there are any conditions upon being able to terminate the lease early. However, not all commercial leases will include this clause.
The ability to assign the lease is a standard clause in commercial or retail leases. This means that you can transfer the lease from one tenant to another. For example, you may do so if you sell your business.
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