As a business owner with a bricks-and-mortar premises, you know that your commercial lease is a legally-binding contract. But what happens if you need to get out of a lease early? Whether you’re expanding and need a larger commercial property, down-sizing, selling your business or moving on to new endeavours, the early termination of a lease requires the right strategy.
So what’s the key to divorcing yourself from a landlord? Knowledge is power.
Read on to maximise your chances of ending a lease early with minimal fuss.
Step one – understand your commercial lease
As a lease holder, you have legal and financial obligations. The most obvious is paying rent, but there are also outgoings, possibly land tax and maintenance to consider.
You also have a lot of rights too, and these should be included within your commercial property lease. There might be an Agreement for Lease, Incentive Deed, or Disclosure Statement that might affect the transfer of a lease. For example, an Incentive Deed, or a Lease Incentive might require you to pay back the landlord should you opt to end your lease early.
Understanding the detail (yes, the fine print) of your lease is absolutely critical, otherwise there may be an early exit clause you don’t know about. You can read more here about how we advise our commercial tenants at HKC.
Step two – engage a tenant advisor to assist with the legalese
Do you understand all of the elements of your lease? Do you understand your Disclosure Statement? Can you confidently say that the time left on your lease is desirable for a lease takeover? Do you know how to find a new tenant?
This is where an expert will be of huge benefit. If you’re at a point in your business where you can’t comply with the terms of the lease, a specialist commercial tenant advisor will be able to help you with a swift course of action for terminating the lease early. Handing over time- and energy-consuming tasks like finding a new tenant and negotiating with the landlord can free you up to concentrate on running your business and tying up other important loose ends.
Decision time – transfer of lease? Or sublease?
Once you’ve confirmed that it’s within your rights to end your lease early, you’ll need to decide on a course of action that’s easy, efficient and maximises your profits. You have two choices: transfer the lease to someone else, or sublet (sublease) your commercial property, either in full or partially. Both are viable options with their own unique set of considerations.
For example, reassigning a lease to a new tenant means that they assume your rights and obligations, such as paying rent, outgoings, land tax and repairs.
If you’re unable to break your lease early, sub-leasing is another option, particularly if you’d like to re-enter the property at a future date. Sub-leasing is also a viable alternative if your current property rent is higher than the going market rent, making it difficult to reassign the lease completely, or if you have surplus space. If your commercial lease terms permit sub-leasing at lower than your lease rent, you’ll find it easier to sublet (although, you will have to pay the difference out of your own pocket).
Sub-leasing can provide tenants with much needed revenue to cover the costs of unused space. It can also be attractive to prospective tenants with small or medium sized businesses who are seeking flexible workspaces to save on costs while their businesses grow.
Step three – contact your landlord
It’s imperative that you have your landlord’s consent for exiting your lease early. Your tenant advisor can approach them for you, and clearly set out the reasons and the plan going forward.
The terms of your lease will clearly state whether the landlord has the right to ‘reasonably withhold’ their consent to let you reassign the lease or sublet part of the property. ‘Reasonably withheld’ consent depends on each individual situation and the parties involved, including the nature of the property rented, the background and viability of the future sub-tenant, and the amount of the proposed sublease rent. One thing to remember is that it’s generally within your rights to receive a timely answer on subleasing or transfer of lease from your landlord.
Step four – so long, farewell
Once you’ve reached a mutually beneficial resolution with your landlord and cracked the champagne, it’s now time to get the legal proceedings underway. This is the time when reassigning the lease and managing your exit and the new tenant’s occupancy, can become particularly stressful. To take a load off your to-do list, it’s a great idea to enlist the help of your tenant advisor to streamline the process. They’ll make sure your lease transfer or sublease agreement runs smoothly, and make sure that your interests are protected.
Getting sound, professional and friendly advice on your commercial lease will ensure that you come out on top. Whether you’re planning to transfer your lease or sublease, you need to make sure that you’re not held responsible for the new tenant’s conduct.
At HKC Property Consultants, we keep your best interests in mind. We have over 25 years of experience providing end-to-end solutions for commercial tenants, and we can ensure your commercial lease transfer goes smoothly.
Get in touch on 03 9078 4794 – expert advice is just a phone call away.