Do you rent a retail or commercial property and want to end the lease? This article will explain some of the potential avenues to terminate a lease early, whether you are the tenant or the landlord.
The first thing you should always do is check the terms of your lease agreement. Different agreements may include different methods for termination or different situations that allow you to terminate the lease. Some common examples are outlined below.
Agreement
The parties may simply agree between themselves to terminate the lease early. There are some things you should turn your mind to if you are looking at reaching an agreement of this nature, including but not limited to:
- How much further rent will the tenant need to pay?
- When does the tenant have to be out of the premises by?
- When does the tenant’s equipment/property need to be out of the premises by?
- What condition does the tenant need to leave the premises in and do they have any obligations to refurbish the premises?
- Does any third party need to consent to the early termination?
- When will the tenant’s security deposit be returned to them?
- Who will pay any legal or other fees associated with the termination (if any)?
- Are there any tax considerations?
If you reach an agreement like this, it’s a good idea to put it in writing so that everyone is on the same page.
Breach
Your lease agreement will probably say that either party can terminate the agreement early due to certain breaches by the other party. Usually, tenants can only terminate a lease early if the landlord commits a major breach. For retail leases, if the landlord has not given the tenant the correct disclosure information at the very start of the lease, this could be sufficient reason for the tenant to terminate the lease.
Landlords are often able to terminate if the tenant has committed a major breach or if they have provided notice to the tenant to remedy a breach and it isn’t remedied.
If you think the other party to your lease has committed a breach that gives you the right to terminate the lease, we suggest seeking legal advice about your options.
Refurbishments or demolition
Sometimes a landlord may be able to give notice to terminate the lease early if they are planning on major refurbishments or demolition of the premises. As a tenant, before you sign a lease you should check with your landlord whether there are any plans to do any refurbishments or demolition to the premises and, if so, what the notice requirements are. It could cause your business to lose goodwill if you are forced to change locations, so it’s an important thing to be aware of.
Repudiation
Repudiation is a common law principle that says if a party to a contract acts in a way that demonstrates they do not consider themselves to be bound by the obligations of the contract, then they are deemed to have abandoned the contract and the other party has a right to terminate.
For example, if a tenant abandons the premises, this could be repudiation because their actions demonstrate they no longer want to be bound by their contractual obligation to occupy the premises. This could, therefore, give the landlord the right to terminate the agreement.
Seek advice
If you would like to terminate a lease early, we suggest getting legal advice to ascertain what your rights and obligations are around the termination. There can be consequences for improperly terminating a lease, such as having to compensate the other party, so it is important to ensure you have done everything properly.
The commercial team at Lynn & Brown lawyers has the expertise to assist in retail and commercial lease disputes, including early terminations.
About the authors: This article has been co-authored by Chelsea McNeill and Steven Brown. Chelsea is a lawyer that graduated from Murdoch University. Steven is a Perth lawyer and director, and has over 20 years’ experience in legal practice and practices in commercial law, dispute resolution and estate planning.
