Ending your lease early
How to end your lease early?
A tenant is bound by the terms in the lease and that includes the length of the lease. If you want to end your lease early you can do one of the following:
1. Negotiate an exit with the landlord; or
2. Assign the lease
Negotiate an exit from the lease
You can only exit the lease early with the landlord’s consent. If you do not obtain the landlord’s consent then you will be in breach of the lease.
An example of how to approach this is as follows:
1. Contact the landlord and explain the situation as to why you would like to terminate the lease early. It is advisable to try and do this over the phone or in person.
2. Understand the costs that will follow generally due to your termination of the lease. Costs can include:
a. The landlord engaging an agent to find a new tenant;
b. Advertising fees for the premises;
c. Lawyer fees for drafting a new lease and surrendering the old lease;
d. Any incentives for the new tenant to secure a new lease;
e. Difference in rent from what you pay and what the new tenant will pay till the end of the lease;
f. Fees associated with chasing you for any unpaid rent or other breaches under the lease; and
g. Make good costs – costs to take back the premises as agreed in the lease which can include removing all your fixtures, fittings and stock in trade.
3. Negotiate with the landlord a payout fee, taking into account the above points.
4. Have a lawyer prepare a Surrender Form to be registered (if required) to remove the lease from the title.
5. Have a lawyer prepare a Deed of Surrender which is a legal document that allows you relinquish your claim on the premises. This deed provides certain conditions eg:
a. how much you will need to pay to terminate the lease;
b. any make good obligations before the date of surrender;
c. return of your bank guarantee/security deposit;
d. release clauses to ensure that you and the landlord release each other from any legal claims arising out of the lease after the surrender date;
e. cost payments for preparing the deed eg each party pay their own costs in relation to preparing and negotiating the deed. It is advisable for both parties to engage a lawyer to review or draft the surrender document; and
f. stamp duty. It is important to obtain your accountant’s advice on tax and other stamp duty issues.
If the landlord does not agree to release you from the lease, then you can try and assign the lease to a third party.
Assign the lease
Prior to transferring the lease to another party you must first obtain the landlord’s consent, unless your lease states otherwise.
The lease will dictate what you need to do in order to obtain the consent from the landlord.
Steps for an assignment can include:
1. seek permission from the landlord and provide any relevant documents to assist the landlord in making its determination eg documents from the new tenant showing professional references, business history and financial documents.
2. request an updated copy of the disclosure statement from the landlord to give to the new tenant. Each state has further criteria in relation to the disclosure statement which should be reviewed.
3. The landlord must respond to your request to assign the lease within a certain timeframe. In some states the landlord can only refuse consent in situations such as:
a. If the permitted use of the premises changes;
b. The new tenant has business skills less then you;
c. The new tenant has inferior finances as compared to you; and
d. You have not complied with the procedure for obtaining the landlord’s consent as set out in your lease.
4. The new tenant agrees to assume the rights and obligations of the lease as if they were the original tenant.
Once all parties agree to the assignment then the landlord’s solicitor will prepare a Transfer of Lease document (depending on the state) and a Deed of Consent to Assignment. This document usually requires the new tenant to give the relevant security and guarantees. We would recommend that in this document you ensure that your obligations under the lease are released from the date of assignment.
Depending on which option you choose to end your lease, it is crucial that you understand your rights and obligations and obtain legal advice before signing any document or vacate your premises.