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Can I break/get out of my commercial lease?
There’s a host of reasons why tenants need to get out of a commercial lease. Historically breaks from a commercial lease were due to changes in financial circumstances or changing business needs, perhaps due to growth or a change in operations. But with the cloud and the increased use of tech coupled with COVID-19, businesses have revised their working practices and no longer require a traditional office setup.
Ending a business lease early is not simply a case of giving notice. By signing a commercial lease agreement, you have entered a legally binding contract which will be recorded in an Auckland District Law Society standard form. If either party breaches the contract, they can be sued. Courts have the power to award damages or enforce the contract, so it’s important the correct processes are followed to avoid litigation.
Review the commercial lease agreement
The process of terminating a property lease starts where it all began – with the signed lease agreement. Within the document there maybe an early termination clause or break clause which outlines the process you need to follow to end the lease term early. Typically, there are conditions attached to a commercial lease. These are legal obligations you need to fulfil before you can exit the tenancy.
What happens if there is no break clause for to end the contract early?
It’s always wise to remain on good terms with the landlord so you have more options available to you. A landlord is not obligated to accept a surrender request, so be prepared to negotiate with the landlord or agent. If there is no break clause, you may have to buy out the remaining term of the lease, sublet to a third party, or assign the lease.
Subletting the lease
In some circumstances subletting part or the whole premises is a good solution to reduce costs. The landlord’s permission needs to be sought but the legal relationship is between you and the additional tenant. Always draw up a contract between you and the subletter – you remain bound by the landlord’s commercial lease agreement, and this protects your position.
Assigning the lease
This is when you transfer the lease to a new party. They will be bound by the same obligations as per your contract, but a new legal relationship is created with the landlord which can include new terms. Landlord consent is still required, but most cannot unreasonably withhold it. You must realise, unless negotiated otherwise, if the new tenant defaults on rent you are liable.
When you are starting a business or moving into premises instructing business lawyers to review the lease is understandably another cost you’d rather not have. However, you can see how important it is to have a commercial lease agreement that helps you avoid the serious financial repercussions and debt breaking the lease early. Weston Ward & Lascelles are Christchurch NZ business property lawyers, who help negotiate the best terms for your commercial lease agreement before you sign it.
If you need legal services because you have an existing agreement and wish to break the commercial lease, contact Weston Ward Lascelles Solicitors today for a free no obligation chat. Call 03 379 1740.
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