What Happens If My Tenant Wants To Break Their Lease?
“My commercial tenant wants to break their lease. What now?”
Most retail and commercial leases in Victoria make it clear in their conditions that a tenant must
cover all their landlord’s reasonable out-of-pocket expenses when it comes to terminating before
the end of a fixed term. This would be inclusive of (but not limited to) the following costs:
- Advertising
- Agent letting fees
- Lease production fees or other documentation required
- Income that the Landlord would have otherwise received if the tenant were to stay, such as:
o Difference in rent if a replacement tenant is paying a lower rental amount
o Rent-free period for an incoming tenant
o Vacancy whilst a new tenant is being sourced
o Outgoings until a new tenancy commences
Tenants are also usually bound by their ‘make-good’ obligations and will need to reinstate the
premises to its original form unless otherwise agreed. There are many reasons why a tenant may choose to terminate their lease but the most common include:
- Their business has performed well, and they’ve outgrown the space
- What they intended to use the space for is no longer necessary or relevant
- Financial stress
- Health reasons
So now what happens when a tenant advises a landlord or their agent that they need to terminate
their lease?
- Tenant continues to pay until a new tenant is sourced or their term ends
- Tenant and landlord agreed on a figure that the tenant will pay to immediately terminate
the lease - Tenant sources a new tenant themselves and transfers the lease with approval from the
landlord - Tenant sub-leases the property, remain as the ‘head-tenant’ and continues to meet their
obligations
At the end of the day, everything depends on what the terms of the lease says. Whilst extremely
unlikely, there may be a clause that states that the tenant has a right to terminate the lease with limited or
immediate notice without financial penalty (not that we have ever seen one).
