This article outline options and process for terminating a commercial lease.
Can I end my commercial lease early?
At the commencement of leasing any commercial property, you should sign a commercial lease. The lease should detail the circumstances in which it can be terminated and such conditions for termination may differ from lease to lease.
There are various situations where you may be able to terminate a commercial lease. In the first instance, we would suggest double checking your lease to see the conditions to which you are bound.
How to terminate a commercial lease early
You can terminate your commercial lease early in the following circumstances:
1. Negotiate with your Landlord
You can negotiate an agreement with your Landlord to end the lease early.
You may be able to come to an agreement which is beneficial for both parties if they or you are able to find an appropriate replacement tenant quickly. If you do come to a mutual agreement, we would highly recommend attending our offices to draw up a formal surrender of lease document to optimise protection for you, legally and financially.
The Landlord, however, is not under any obligation to negotiate an early termination with you, as it is their right to enforce the full term of the lease.
2. Landlord breaching essential terms
If your Landlord has breached an essential term of the Lease, you may be able to terminate your Lease early on this basis. Not all breaches of the Lease result in termination rights. Accordingly, we recommend you seek legal advice if you believe that you are entitled to break your lease early based on a Landlord's breach.
3. Assigning or transferring a commercial lease
You can assign or transfer your Lease to another party who is willing to take your place as tenant. It is important to keep in mind that the Landlord must consent to any such transfer, but cannot unreasonably withhold consent to a transfer. Your Lease may also have some further conditions regarding assigning or transferring the Lease which you will need to consider when finding a party to take over the Lease.
What are the penalties for breaking a commercial lease?
If you have not negotiated an early termination with your Landlord and are unable to end the lease for breach by a Landlord or by transferring the Lease, then you may have to pay for the following:
- Rent for the remainder of the Lease term or until the premises is leased by a new tenant, whichever is earlier
- Agent fees, including advertising fees and re-letting for the new tenant, and
- Costs associated with reinstating the premises if you have not already done so.
If you have abandoned the premises, or have been deemed to have abandoned the premises, the Landlord will also have rights relating to the goods left stored in the premises. See our related article: What must a landlord of a commercial or retail premises do when a tenant has abandoned goods as a consequence of COVID-19? for more information.
For more information relating to leasing a business premises, refer to Business Victoria.
How can Sharrock Pitman Legal assist?
For assistance on terminating a lease, or if you have any queries regarding commercial leases generally, please contact us and it would be our pleasure to assist. Contact Andre Ong, an Accredited Specialist in Property Law, on 8561 3317 or alternatively fill in the form below.
The information contained in this article is intended to be of a general nature only and should not be relied upon as legal advice. Any legal matters should be discussed specifically with one of our lawyers.
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For further information contact
Andre is a Principal of Sharrock Pitman Legal.
He heads our Property Law Group and is an Accredited Specialist in Property Law (accredited by the Law Institute of Victoria). He also deals with Commercial Law. For further information, contact Andre Ong on his direct line (03) 8561 3317.