What happens when both you and your landlord want to end the lease? Even if you are in agreement that the lease should end, there needs to be some formal paperwork to tie up any legal loose ends. This paperwork is generally a deed of surrender of lease (surrender of lease). This deed has the effect of ending the relationship between you, as the tenant, and the landlord. This article explains different aspects of the deed, including:
- when you should use it;
- the standard clauses it should have; and
- any issues that you should consider.
This guide will help you to understand your options when you purchase a business with leased premises.
What is a Surrender of Lease?
A surrender of lease is a document that both you and the landlord must sign when you have agreed that a lease will end. The surrender of lease sets out the key agreements between the landlord and tenant. It ensures that neither party has any further legal responsibilities surrounding the lease. It can be used in many cases, such as where:
- you want to exit the lease early;
- the landlord wants to end the lease early to redevelop the premises, and you agree to leave the premises; or
- you want to restructure their business and transfer the lease to their new entity, such as transferring from your sole trader to a company.
What Are Key Clauses of a Surrender of Lease?
While the terms of each surrender of lease will be unique, there are some common things you should look out for.
Preconditions
Look out for any preconditions that you must first meet to surrender the lease.
Make Good
There may be a requirement you ‘make good’ the premises by the date of surrender. This means that you will have to return the premises to the condition that it was provided to you.
Alternatively, if the landlord is planning to redevelop the property, there may be a release in your favour that confirms that you do not need to make good. This is because the landlord is going to redevelop or demolish the property anyway.
Security Deposit
Look out for a provision detailing the return of any security deposit. This might include that the landlord returns the bank guarantee that you lodged at the start of the lease as security. If the landlord has made any deductions to your guarantee, ensure that they were justified.
Release of Legal Responsibilities
Mutual indemnity and release clauses ensure that you and the landlord release each other from any legal claims arising out of the lease. This ensures that both the landlord and yourself are no longer legally responsible for the lease after the surrender date. Therefore, you are legally protected from any legal claims that the landlord might bring after the surrender of the lease.
Cost Payments
There may be a provision relating to the payment of costs. This will likely be an agreement between the landlord and yourself on what costs need payment. Further, the provision might note that each party must bear their own costs. In some circumstances, it specifies that the party requesting the surrender must pay the other party’s legal costs.
Continue reading this article below the formStamp Duty
If the lease is registered, your surrender of lease form will commonly be liable for stamp duty. Stamp duty is a tax that’s imposed on the purchase of assets and transactions of property. By paying stamp duty, the relevant state land titles office will remove your registered interest on the property from the land’s title.
If you have paid a surrender fee to end a lease early, it is important to obtain your accountant’s advice on tax and other stamp duty issues. This will impact upon the way the payments are dealt with and any stamp duty that you must pay on the deed of surrender.
Key Takeaways
When considering a surrender of lease, it is necessary that you and your landlord understand the specific clauses of the deed. You should ensure that the conditions within the clauses are:
- reasonable;
- clear; and
- don’t place an unrealistic burden on you.
It is also important to note what costs you will be responsible for paying and any lease registration fees or stamp duty.
If you have any questions about your rights and obligations under a surrender of lease, our experienced leasing lawyers can assist as part of our LegalVision membership. You will have unlimited access to lawyers to answer your questions and draft and review your documents for a low monthly fee. Call us today on 1300 544 755 or visit our membership page.
We appreciate your feedback – your submission has been successfully received.
