Commercial Lease Termination Agreement

What You Need to Know

Valid Reasons for Commercial Lease Termination Agreement

Although a commercial lease is a legally binding contract, you might find yourself in a situation when you need to terminate it before it ends.

A typical commercial lease agreement is a complex legal document usually drafted and negotiated by commercial lawyers. You’d expect both parties make it hard for the other party to end the lease early.

This is why we always recommend to consult a commercial lawyer before going ahead with an attempt to negotiate a Commercial Lease Termination Agreement with the other party – consequences of doing it wrong may hurt your business financially and even bring legal action against you.

If you have to terminate your commercial lease agreement, you might be able to do it when your situation meets one of these conditions:

  1. A breach of the commercial lease agreement: You may terminate a lease when the other party breached a material term of the lease. The meaning of a material term is not as easy to determine as checking a dictionary. If challenged in court, the meaning will be derived from the lease itself and the consequences of a breach on the innocent party. Just because someone assumed a material term to mean one thing for them, doesn’t always imply the same thing for others especially if the dispute goes to court where the terms of the lease will be scrutinised by a judge.
  2. A transfer of the commercial lease agreement: You’ll be able to terminate a lease if you can transfer it to another party. A commercial lease usually has a clause to cover a possible transfer before the lease ends. If the transfer clause exists, it will outline the conditions of the transfer.
  3. Termination of a commercial lease by mutual agreement: A commercial lease may be terminated if both parties to the lease agree to terminate it.
  4. Early termination clause included in a commercial lease: Your commercial lease might have a clause included in it to grant one or both parties an option to terminate the lease under specific conditions agreed to by the parties to the contract.
  5. Other reasons to terminate a commercial lease agreement: Rare but still possible reasons to terminate a commercial lease is when the leased premises become not suitable for ordinary use by humans or destroyed.

Commercial Lease Termination: Necessary Conditions

If you decide to terminate a commercial lease agreement early, you’ll need to:

  1. Comply with legal requirements for serving a Notice to Remedy Breach if that’s the ground for lease termination. It’s not uncommon for a court to declare a Notice to Remedy Breach invalid. This is where legal advice helps to make sure your notice has sufficient merit to be valid.
  2. Inform the other party of your intent to end the commercial lease early.

No matter what the situation is when you want to end your commercial lease agreement early, it’s only prudent for a responsible business owner to consult a commercial lawyer before taking even the first step.

Final Thoughts

Terminating a commercial lease may be an expensive option if you don’t have valid reasons to end it early.

For example, if you’re a tenant, you might still be liable for rent obligations until the lease ends or the landlord finds new tenants.

The landlord might also have the right to charge you advertising costs associated with finding a new tenant or real estate agent’s fees.

However, in our experience, it’s possible to find a compromise and a reasonable solution to terminate a commercial lease early armed with sound legal advice to achieve a favourable outcome for your business.

Have a Question? Ask Commercial Lawyer

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