What you need to know about ending Commercial Leases early

Rose Lawyers on 3 August 2018

When you enter into a Commercial Lease, you will usually need to sign an Agreement that outlines certain details about your Lease. Your Agreement will specify the length of time that your lease will run for and will outline the duties each party must perform. Your Agreement will also contain information about what needs to happen in the case of early termination.

If you need to prematurely end a Lease, you need to know that it can be a complicated matter that requires patience, understanding, and, in many cases, legal advice. There are some situations which allow a Commercial Lease Agreement to be terminated early, and these will be discussed along with the consequences of each.

If you are looking to break a Commercial Lease or need advice on ending a Commercial Lease early, contact us at Rose Lawyers on 03 9878 5222. We can make an assessment of your situation and provide direction on how to proceed.

When can a Commercial Lease be ended early?

There are a number of situations in which it is appropriate and necessary to end Commercial Leases before the specified end date. These include:

  • A breach of the Commercial Lease Agreement. One party might have breached a material term of the Commercial Lease Agreement, resulting in the termination of the Lease.

  • A Lease transfer. This takes place when a lessee transfers their Lease to a new party. You may need to check the terms of your Contract to make sure you have a transfer clause in your Lease Agreement, and if so, what particular duties you have to fulfil.

  • Mutual consent. This occurs where a tenant wishes to leave, and a commercial landlord grants permission for them to do so.

  • Early termination. You might have an early termination clause included in your Contract which grants you permission to end your Lease early. This clause will outline specific situations in which you can terminate your Lease early.

Other cases for early termination include: if a tenant dies, or if the premises are destroyed, or otherwise declared to be unfit for human use or habitation.

What you need to do to end Commercial Leases early

Breaking a Commercial Lease is not uncommon, however, it is important to make sure you have sound legal advice so that you are not breaching any of your obligations. When thinking of ending a Commercial Lease, you need to take a few steps to make sure you get the outcome you desire.

  • Talk to the property owner. This may be a simple solution to ending your Lease and may even result in a favourable outcome if the property owner can get someone else in to Lease your property without impacting on their income stream.

  • Give your landlord as much notice as possible. This is vital in keeping positive relations in place and to ensure that your landlord is well positioned to find a new tenant. You may even be able to help to find a new tenant for the property.

  • If you are thinking of ending a Lease because of a breach you will need to adhere to the strict legal requirements for serving a notice of a breach on the landlord or relevant party.

  • Submit notice of your intent to end your Commercial Lease and discuss any relevant compensation with your landlord.

Whatever situation you are in, it is important to get legal advice on ending your Lease early to make sure that you do not run the risk of falling foul of a Contracted obligation, and that you fulfil your duties as a lessee.

woman looking at breaking a commercial lease

Potential pitfalls when breaking a Commercial Lease early

Terminating Commercial Leases early is often seen as a potentially costly endeavour. This is because you may have to compensate your landlord for any rent lost while their property is vacant.

It is often possible to negotiate and work out a compromise with your landlord, so it is almost always best to speak to them and to provide as much notice as possible. It's in your best interest to try and work out a compromise with your landlord, as you may experience the following pitfalls if you don't:

  • You may continue to be liable for the rent until new tenants move in, or until your original Lease expires

  • You might have to pay advertising costs for a new tenant

  • There may be leasing fees and agents fees to pay for, which are associated with the new tenant

You do not have to pay a fixed break Lease fee in Victoria, but if you do terminate your fixed Agreement early without grounds, you will need to pay compensation for lost rental income, advertising, and letting fees. You may be able to claim severe hardship, but a tribunal may still order you to pay some form of compensation.

Wondering where you stand? Speak to our business lawyers in Melbourne on 03 9878 5222. We can provide clarity so that you can move forward in the right direction.