Businesses can be unpredictable and there are many reasons why you, as a tenant, might need to end your commercial lease early.
Once parties enter into a valid lease, they are generally bound by the obligations under the lease, including the payment of rent for the agreed term.
If you need to terminate your commercial lease agreement, you might be able to do it when your situation meets a certain condition. This article will explore four options that you may be able to consider.
1. Surrender the lease
If your lease does not give you the right to terminate, you can talk to your landlord about the possibility of an early surrender of lease on terms that are agreeable to both parties.
The landlord will have no legal obligation to agree to the surrender if you try to negotiate. However, the terms of the surrender are also open to negotiation, including:
- When rent must be paid
- Whether any compensation will be payable to the landlord
- Whether you have to comply with make good obligations
Often, tenants will be responsible for the landlord’s legal costs of preparing such documentation, as well as any stamp duty and lodgment fees.
You can read more about ending a lease here.
2. Early Termination Clause
The option to terminate the lease early may be included within the lease itself as an early termination clause (commonly called a break clause). While early termination clauses are rare, they can be negotiated into a commercial lease.
As the business owner, you must negotiate these clauses before you sign the terms of the lease. There may also be further costs associated with an early termination clause, including:
- Continuing to pay rent while the landlord fills the vacancy
- Paying for advertising fees
- Paying for legal fees incurred by ending the lease
It is recommended to obtain legal advice on the terms of the lease before taking any steps to terminate your lease.
3. Assignment of Lease
Another option for you to consider is assigning the lease to a new tenant. This will enable you to get out of your commercial lease by finding someone else to take the lease on. Depending on the conditions that need to be complied with, the lease will need to be reviewed.
As a tenant, it is important that you are released from all future obligations following an assignment of lease under the deed of consent. You will likely have to pay the landlord’s legal costs for consenting to the assignment of the commercial lease.
4. Subletting (or licencing) the Premises
You may also consider subletting or licensing the whole (or part) of the premises. This might be a good option if you wish to remain on the premises but reduce your costs.
Unlike an assignment of lease, you will still be liable under the lease as head lessee and will not be released from your obligations to pay rent. However, this option can help minimise your financial burdens.
It is important to note that subletting the premises will also require the landlord’s consent. Your lease will also include conditions that you must satisfy. These conditions are typically very similar to those in an assignment.
We recommend seeking legal advice to ensure that your interests are properly protected in your sublease arrangement.
Always seek legal advice
Leases are binding contracts, and can be an expensive option if you don’t have valid reasons to end it early.
It is strongly recommended to obtain legal advice to ensure you have carefully considered all available options and are aware of the potential costs and liabilities that may arise.
Regardless of your circumstance, it can be possible to find a compromise and a reasonable solution to terminate your lease early.
The Cameron Rogers team are experts in dealing with commercial leases of all sizes. If you find yourself in a situation where you need to terminate your lease, reach out to us for an obligation free consultation now on 07 5445 1213 or book a consultation.
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