Business Leasing Guide: Section 3.3 Pre-termination of Lease
Lease durations are typically fixed without pre-termination rights for both the tenant and landlord.
Should there be a mutual or unilateral pre-termination rights in the lease, the tenant and landlord should be agreeable with the duration of advance pre-termination notice to vacate the premises and the amount of compensation, if any.
Most Small and Medium Enterprise (SME) business will require a lead time of approximately 6 months to vacate the premise.
What Frequently Happens in Practice:
Increasingly a landlord is able to pre-terminate a lease without liability to the tenant. This is usually not written as a pre-termination clause but as a Landlord’s Right to Deal with the Premises.
Events that are often listed in a tenancy agreement that allow a landlord to pre-terminate a lease without liability include:
- a change in the Landlord’s trade mix policy; and
- renovation, refurbishment, alteration and reconfiguration that requires possession of the premise.
The events triggering a pre-termination without liability by the landlord is at the landlord’s “absolute discretion”. What this means is that a landlord may easily terminate a tenant at any time without paying any compensation to the tenant.
Unfortunately there is no provision in the tenancy agreement that will allow a tenant to pre-terminate a lease without liability. The amount of compensation a tenant needs to pay usually comprise the following:
- forfeiture of security deposit, usually 3 months; and
- unrealised gross rent from the date of early termination to the end of the lease; and
- estimated unrealised gross turnover rent from the date of early termination to the end of the lease; and
- legal fees for the Deed of Surrender; and
- agent’s commission (even if the agent is a subsidiary of the landlord).