BREAK CLAUSE: As a rule, a commercial property lease will continue to run until it reaches its end date.
But, there are ways that a tenant, a landlord, or both, can get out of a commercial lease early.
To end it in advance, there needs to be a break clause provision written in the lease agreement.
A break clause can arise on one or several specified dates. You can also choose to have it applied at any time during the term.
Break clauses are usually official dates recorded in a lease agreement. The landlord and tenant must both agree to the plug-in clause. In simple terms, it means the lease can be ‘broken’ without a penalty for anyone bound by the contract.
The tenant needs to give at least two (2) months notice to the landlord if they want to use the break clause. A landlord can only use the break clause if the tenant agrees to it.
Note: As a rule, a rolling break clause would occur after a specified period of time has already elapsed.
Tenants Ending a Commercial Lease
There are other circumstances that allow a tenant to end a commercial lease early, such as if:
- The landlord is going to agree to it.
- The lease gets passed on to another tenant (the landlord may ask for a guarantee).
- The landlord allows you to sublet the premises. The tenant would still be responsible for the rent even if they do not trade from the building.
Note: Tenants must continue to pay rent for the whole of the tenancy period if none of these situations apply.
Landlords Ending a Commercial Lease
The landlord can only end a commercial property lease if either:
- The tenant fails to pay the agreed amount of rent.
- The tenant fails to meet other obligations stated in the lease agreement.
In some cases, there may be a ‘forfeiture clause’ included in the contract. If so, the landlord can use it to end the lease according to any of those particular situations.
Note: A court may allow the tenant to stay in the property if they can challenge the same situation in court.
Fixed Term Tenancy Agreement
A lease would come to an end when the term is up as an automatic process in a fixed-term tenancy agreement. But, it is not uncommon for a tenant to want to stay in the property even after this term. The landlord must agree to it for a tenant to do so.
In cases such as these, staying on past a fixed term would represent a ‘continuing obligation’ to pay the rent. The tenant would then need to give at least three (3) months notice if they want to leave the property.