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Many businesses rent an office, shop or building to run their business from. When they find a place they like, they negotiate the specifics of the lease with the building owner, the Landlord. If those negotiations go well, they sign a commercial lease, which includes things like how much rent is to be paid, when it is to be paid and how long lease goes for (this is called the “term” of the lease).
Many business owners do not realise that the term of the lease is usually fixed. You can’t simply give notice to end a lease in the way you do with a residential tenancy. This makes things tricky if the business is not profitable, there is no income coming in and yet, the business owner legally has to keep paying the rent and other outgoings under the lease until the end date of the lease.
Here are five ways you might be able to get out of your commercial lease:
1. Cancel it under the terms of the lease
First of all, you need to carefully read through your lease. Hopefully you had it checked by a lawyer before you signed it, but if not you can ask us to look over it now, and explain what your responsibilities are. If there are certain conditions that let you end the lease – bingo! You can terminate the lease as long as those conditions are met.
2. Talk to your landlord
If you have no joy in ending the lease under the terms of the lease, have a chat with your landlord. If you let them know what is going on with your business and your reasons for wanting to cancel the lease early, they may just be willing to change the term of the lease and let you out of it early. However, there is no guarantee that they will agree to let you out of the lease early, and they are well within their rights to insist that you stick to the lease terms you signed up to.
3. Assign or sublease
You can try to assign your lease to somebody else, meaning that they will move in and take over your existing lease and pay the rent to your landlord. You are only able to do this if your lease says that you are allowed to assign your lease and your landlord agrees. Your landlord will want to do some due diligence on the new tenant, to make the new tenant has the ability to pay the rent and meet the other obligations under the lease. You will need to pay the landlord’s legal costs to have the lease assigned from you to the new tenant. However, you need to be careful as you could still be liable for any damages to the premises, any unpaid rent, any maintenance and having to return the place to the same standard it was when you signed the lease. It is a requirement of most leases that you leave the premises ‘as you found them’, which could cost you if you (or the person you assign the lease to) makes changes to the premises.
Subleasing to somebody else is also an option, and is different to assigning a lease as your lease with the landlord stays in place, and you sublease the premises to someone else by signing a separate legal document called a sublease. You can only sublease the premises to someone else if your lease says you can. You also need to make sure you follow all the rules in the lease about subleasing.
4. Buy out of the lease
This is where you negotiate with the Landlord to pay a fixed amount to end the lease, which is less than the total amount of rent you would have had to pay if you stayed in the premises to the end of the lease term. We are happy to negotiate this for you.
5. "Quit the premises”
The final option is to ‘quit the premises’ - just move out. This option is a last resort and you should get legal advice before you do it as your landlord could take legal action against you if you do it. Your landlord could also take legal action against you personally if you have guaranteed the lease. Your landlord has a responsibility to mitigate their loss so should try and find a new tenant. However, you carry the risk that if the landlord can’t find someone to move in that you will still be liable for the unpaid rent until the end of your lease term. Even if the landlord manages to find another tenant, but has to charge them lower rent, you will be responsible for the shortfall.
Disclaimer: The information on this page is general information only and must not be relied on as legal advice. Legal Beagle is not a law firm or a substitute for a law firm. We are unable to provide any kind of advice, explanation, opinion, or recommendation about possible legal rights, remedies, defences, options, selection of legal documents or strategies.
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