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Business is unpredictable and subject to many different factors. As a tenant, there are many reasons why you may wish to terminate your retail lease. However, if it is a fixed term tenancy, you have likely agreed to a certain length or lease term set out in your lease agreement. The lease agreement you have signed is a legally binding contract, and this means it is not as simple as walking away from the lease and returning the keys to the landlord. There can be certain consequences and costs associated with terminating your lease early. This article will explain options that you could consider when wanting to terminate your retail lease early. 

Retail Lease Termination 

A retail lease agreement may permit a party to end their lease early without being in breach of the lease and without paying damages. Not all lease agreements are the same, so it is important to ensure you seek advice from a leasing lawyer to determine if you have a clause in your lease that may permit early termination. Here are four ways you may be able to exit your lease early.

1. Early Termination or Exit Clause

There may be an early termination or exit clause included in your lease agreement that may grant either or one of the parties to end the lease early. This clause will outline specific situations in which you may be able to terminate your lease early. Not all leases will contain such a clause, or it could only favour one party rather than mutual. It is also important to ensure you have your lease reviewed by a lawyer before signing the lease, as this clause could favour the landlord. The last thing any business owner would want is to be forced to relocate if the landlord has a right to terminate the lease early under such a clause. 

Early termination clauses may also incur costs for the tenant. You can expect you may need to pay the landlord’s costs associated with ending the lease early, which could include legal costs or the payment of rent whilst the landlord finds a new tenant. 

2. Mutual Agreement

Another option for getting out of your lease is a mutual agreement. This is when the landlord and tenant mutually agree to end their lease before its expiry date. Your landlord will have no legal obligation to agree to the surrender. However, you can try to negotiate the terms of the surrender with the landlord. 

Surrendering your lease is a formal process whereby both parties agree that the lease will end. Parties often sign a surrender of lease document to confirm this agreement and under what terms the surrender will occur. This ensures neither party has any further responsibilities or obligations surrounding the lease. It is important to get legal advice on what the consequences are of surrendering your lease agreement early. 

3. Assignment of Lease 

Assignment of lease involves transferring rights and obligations under the lease to a new tenant. This may enable you to exit your lease early by finding another tenant to take over. Your lease agreement should have a clause that details how and when you can assign your lease. It will also spell out what requirements you need to satisfy before the landlord can agree to assign the lease. In almost all cases, you will need your landlord’s consent to assign the lease. 

Under retail leasing legislation in NSW, your landlord cannot reasonably withhold consent for the assignment of a retail lease unless: 

  • the proposed tenant wants to change the permitted use of the shop; 
  • the proposed tenant has inferior financial resources or skills to the current tenant; and
  • the current tenant has not followed the correct procedures, for example, obtaining consent for the assignment. 

The above are situations where your landlord may be able to withhold consent to an assignment of your retail lease. However, if you have met all the relevant requirements of your lease and the retail legislation in your state then your landlord cannot reasonably withhold consent for you to assign your lease. If you are unsure of these requirements, speak to a lawyer that has knowledge of the relevant retail legislation in your state. 

4. Subletting the Premises 

Subletting is when you transfer part of your interest in the property to a third party. Whether you can or cannot sublease your premises depends on what your lease agreement authorises. Your lease agreement will often require you to get written consent from your landlord before you can do so. 

Businesses sublet their premises because they have excess space to share with another tenant or when they have moved their business somewhere else but still need to abide by obligations under their lease. The party entering into the sublease is known as a sub-tenant. You may sublease all or just part of your property to the subtenant. Usually, the subtenant will pay you rent under the sublease agreement. As the original tenant in the lease, you will assume all responsibility on behalf of your subtenant for damage or loss that may occur. It is important you have a sublease in place to govern this relationship. It is also crucial to understand that a sublease does not release you from your obligations under your lease with the landlord. 

Key Takeaways 

If you wish to terminate your retail lease early, you must have your lease reviewed to determine how you can exit your lease early. Often exiting your lease early will involve some form of negotiations with your landlord to seek permission to do so. 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.

Frequently Asked Questions

How can I exit my lease early?

Not all lease agreements are the same, so it is important to ensure you seek advice from a leasing lawyer to determine if you have a clause in your lease that may permit early termination. However, commonly you may be able to exit the lease by mutual agreement, using the early termination clause, assigning the lease to another tenant or subletting the premises.

Is a lease legally binding?

The lease agreement you have signed is a legally binding contract, and this means it is not as simple as walking away from the lease and returning the keys to the landlord.

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