Fair Tenancy Framework: Pre-termination of Lease

Business Leasing Guide: Section 3.3 Pre-termination of Lease

Description:

Lease durations are typically fixed without pre-termination rights for both the tenant and landlord.

Guide:

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).

SG TUFF Recommendation:

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