Leaving A Commercial Lease: Everything You Need to Know

Being in a commercial lease is a significant commitment, and sometimes, circumstances can change. If you’re thinking about leaving early, it’s important to understand that ending a commercial lease can be a complex process. Taking the time to understand your responsibilities can help you reduce risk and move forward strategically.

It involves understanding your liability, being ready for possible legal costs, and the need for negotiating terms with your landlord. Below are the key considerations and some practical tips to keep in mind if you’re looking to get out of a commercial lease early.

What Is a Commercial Lease?

According to the Small Business Development Corporation’s definition, Commercial leases are legally binding agreements between a tenant and a landlord, allowing a business to operate in a commercial setting for a specified lease term. This can include offices, a shop, factories, and even a building or shopping centre.

The lease contract will usually set out details like the rent, commercial property outgoings, permitted use of the space, and either party’s responsibilities for repairs, maintenance, and insurance for the premises. In some arrangements, the landlord may also provide a disclosure statement before signing.

What Are Commercial Property Outgoings?

In simple terms, commercial property outgoings are additional expenses that a tenant may be liable to pay on top of rent. There are several, but some examples of this can include:

• Council rates
• Land tax
• Management fees
• Cleaning fees
• Regular maintenance or repairs
• Insurance

Commercial property outgoings are a significant part of commercial leases that require a deep understanding and careful consideration. These can be a major cost and can add up, especially in large commercial properties, so understanding them properly can help your business budget accurately before entering the lease and operating within the commercial property.

Things to Check Before Leaving a Commercial Lease

Before leaving a commercial lease, it’s important to review your obligations carefully to avoid unexpected costs, disputes, or legal complications.

Your Liability and Obligations

When you leave a commercial lease early, the most important thing to know and understand is your liabilities and obligations under the lease contract. Make sure to thoroughly review the contract first. Some examples of what to pay close attention to are:

• Notice periods
• Break clauses
• Make-good requirements
• Penalty provisions

If you’re not sure how to interpret the terms, seeking advice from commercial lease lawyers can help you understand your position better. Our experienced team can review your lease, explain your options, and guide you throughout the whole process.

Ongoing Rent & Commercial Property Outgoings

You may be obliged to pay rent or cover commercial property outgoings until a new tenant is found, or if you reach an agreement with the landlord. Being aware of these major costs before leaving the lease helps avoid disputes. Landlords may also assess market rent when considering a replacement tenant.

Sublease or Assignment Options

If you’d like to leave the lease early, some contracts allow subleasing or assignment. However, you usually still need consent from the landlord, so make sure to check beforehand.

Fit Outs and Equipment Considerations

In commercial leases, it’s common to have capital improvements, fit-outs, or equipment installed in the leased premises. This can affect negotiations, so you will need to review any details about who will bear the cost.

Practical Tips on How to Get Out of a Commercial Lease Early

1. Negotiate With Your Landlord

Review your lease contract and notice requirements, then approach your landlord to negotiate terms. You may be able to help find a new tenant, arrange a repayment for rent or other expenses, or discuss obligations with any installed equipment or fit-outs.

2. See if Assigning or Subleasing Is an Option

Some commercial leases and landlords will allow subleasing or assignment to another business. Subleasing is a legal arrangement that lets you rent out the space to a third party (sublessee). On the other hand, assigning a commercial lease is when you legally transfer an existing agreement to a new tenant (assignee), letting them take over all rights and obligations.

3. Surrender Lease

If negotiation, subleasing, or assigning aren’t possible, you may need to consider surrendering the lease. This will involve signing an agreement with the landlord to terminate the lease early, possibly including repayment of rent, outgoings, or other expenses until the lease term is over.

4. Document Everything

Make sure to keep detailed records of all payments, receipts, correspondence, and agreements that relate to rent, outgoings, or other expenses. Make sure that any repairs or fit-out responsibilities are clearly outlined in writing.

5. Seek Legal Guidance

If you’re feeling overwhelmed or none of the above options seems attainable, make sure to seek legal advice. At Lotus Legal, our experienced team can advise you on the best course of action. This guidance can help you better understand your options, manage potential risks, and approach the process of exiting a commercial lease in a stress-free, informed manner.

Legal Costs and Potential Risks of Leaving a Commercial Lease

Leaving a commercial lease before the lease ends can involve significant financial and legal risk if not handled properly. You may still be required to pay rent, cover commercial property outgoings, and remain liable for the landlord’s costs until a new tenant is found.

In some cases, disputes may arise over capital items, installed equipment, fit-outs, or repairs needed in the commercial premises, increasing potential legal costs. Trying to terminate a commercial lease early without proper negotiation with the landlord or professional guidance can have long-term impacts and make it harder for you to secure a new lease in the future. This includes possible claims for the landlord’s costs and other costs tied to the lease contract.

Always Seek Professional Advice for Commercial Leases

If you are considering whether you should leave a retail lease or commercial lease, it’s important to act strategically in order to reduce risk and unnecessary legal costs.

Our trusted commercial lease lawyers have years of experience with retail and commercial properties. They can help you negotiate terms, review your lease contract, and clarify responsibilities for repairs, insurance, and other expenses. Contact our friendly team to receive professional guidance.