How to get out of a commercial lease

To get out of a commercial lease early, you need the lease to allow it, the landlord to agree, or someone else to take it over. The main options are a break clause, a surrender agreed with the landlord, assigning or subletting the lease, or ending it because the landlord has breached it. Walking away without one of these leaves you, and any guarantors, liable for the rent and the landlord’s losses.

Check the lease first

Before you talk to the landlord, read the lease for:

• a break clause, which lets you end the lease early by notice, usually after a set date or on payment of a fee
• the assignment clause, which sets out when the landlord must consent to a new tenant
• the subletting clause
• the term and option dates, as the lease may end sooner than you think if you don’t exercise an option
• the personal guarantee, so you know who else is exposed

Most leases don’t have a break clause. If yours doesn’t, the options below are what’s left.

Your options

Surrender

A surrender is an agreement with the landlord to end the lease before the term ends. It is usually recorded in a deed of surrender.

The landlord doesn’t have to agree. If it does, it will often ask for something in return, such as:

• a payment, often a few months’ rent
• the make good work, or a payment instead
• a new tenant ready to take the premises

The deed should release you and your guarantors from future claims, deal with the bond or bank guarantee, and say what happens to make good and any unpaid rent. Without a release, the landlord may still be able to claim later.

Agreed with your landlord to end the lease? We prepare or check the deed of surrender, so the release and the bond are dealt with in writing. Ask about a deed of surrender.

Assignment

If you are selling the business, or someone wants to take over the premises, you can ask the landlord to consent to an assignment. The new tenant takes over the lease for the rest of the term.

Many leases keep the outgoing tenant and its guarantors liable after an assignment. Ask the landlord to release you as part of the deal. See personal guarantee on a commercial lease for how this affects guarantors.

Subletting

A sublease lets someone else use the premises while you stay the tenant. You collect rent from them and keep paying the landlord. It can reduce your cost, but you remain liable for everything under the lease.

If the landlord has breached the lease

You may be able to end the lease if the landlord has seriously breached it, for example by not giving you access or not fixing a defect that stops you trading. This is risky. If the breach isn’t serious enough, ending the lease can be a breach by you, and the landlord can claim against you.

Get advice before you rely on the landlord’s breach.

What happens if you just leave

If you stop paying and leave, the lease doesn’t end. The landlord can usually choose to end the lease and claim its losses, including:

• unpaid rent and outgoings
• rent for the time it takes to find a new tenant
• the cost of re-letting, such as agent’s fees and incentives
• make good costs

The landlord must take reasonable steps to re-let the premises, but you can still owe a large amount.

Retail leases

If the lease is a retail lease, your state’s retail leases Act may give you other rights. In some states, if the landlord didn’t give you a disclosure statement on time, or it was misleading, you can end the lease within a set period. The rules differ between states, so check the Act that applies to your premises.