In the course of running a business, it may become necessary for you to break a lease in order to relocate.
While it’s not uncommon to end a lease before its term is completed, keep in mind that doing so without proper advice might lead to disputes and serious financial consequences.
If you are thinking about breaking a commercial lease for one reason or another, consider the following factors below before making your final decision.
When can a lease be ended prematurely?
There are a few situations in which a commercial lease can be ended early. These include:
- The fulfillment of an early termination clause as detailed in your Contract
- A breach of term by either party in the Contract Lease Agreement (CLA)
- Mutual consent in which the lessor and the lessee agree to end the lease prematurely
- A lease transfer initiated by the lessee according to the lease transfer clause in the CLA
- Death of the lessee
- Destruction of the premises
- The property becomes uninhabitable
Whichever situation you find yourself in, it’s in your best interest to have a solicitor review your Contract before taking any sort of action.
How to break a commercial lease
The solicitor should be able to tell you with certainty if you are breaching anything stipulated in your Contract. If you are in the clear, then you can proceed with the following steps:
Talk to your landlord. Breaking your commercial lease may be simpler than you initially thought if your landlord agrees to end the lease early. It may even work in your favour if the landlord finds someone to lease the property soon after you leave, keeping the impact on their income minimal.
Give your landlord advance notice. Out of courtesy, let your landlord know about your intention to break the lease as early as possible. This will give both of you enough time to negotiate any compensations that might be necessary and maybe even find a new tenant to take your place.
Stick to the legal requirements. In the event that you are ending the lease because of a breach in contract, follow the legalities closely and serve the notice of breach to the party responsible.
Meet your “make good” requirements. Most, if not all, contracts will require you to restore the premises to the way it was at the start of the lease. Make sure to fulfill this obligation to prevent disputes from arising.
How to transfer a lease
One way to exit a commercial lease without a lot of complications is to transfer or assign the lease to another willing party. Take note that you may only do this if there is a lease transfer clause in your Contract Lease Agreement. If there’s none, you can still discuss the possibility with your landlord and obtain their consent before proceeding. Most lessors are open to the idea and do not withhold their consent unless they have good reason to.
When transferring a lease, adhere to conditions detailed in the clause. You may be liable for some fees and may even need to settle the difference if the rent is lower for the new lessor.
The potential pitfalls of breaking a lease
In most cases, exiting a lease before the contract term ends is costly. The primary reason for this is because the tenant needs to pay any loss of income caused by the breaking of the lease. Some of the financial obligations that you might be liable for are:
- Leasing and agent fees for securing the new tenant
- Advertising costs for finding a new tenant
- The rent itself until the new tenants begin their contract or until your lease expires
To secure the best outcome, let your landlord know of your intention to break the least early and negotiate. Your landlord may even have another property that you can lease in replacement for the premises that you plan to leave!
How to recover your bond, deposit or bank guarantee
After completing your “make good” duties, the landlord is required to return your deposit, bond, or bank guarantee. However, in many fixed term contracts, penalties need to be settled first before you recover your money. You can also lose your deposit if you fail to meet any of your obligations.
Experienced commercial lawyers
Need clarity in taking your next step? Adams Wilson Lawyers can guide you in taking the correct steps when breaking a commercial lease. Most disputes and unreasonables fees can be avoided by a lessee when they take action based on sound legal advice.
Schedule a consultation with us now to discuss your commercial leasing matter.