Ending a commercial (including retail) lease early
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Can a lease end early?
A lease is a legally binding agreement. By signing it, the landlord and tenant have agreed that the tenant will lease the retail or commercial premises for the period of time specified in the lease. Usually a lease can’t be broken early by the landlord or tenant, unless the lease allows for this to happen.
What should a tenant do if they want to end their lease early?
Some tenants who are still experiencing a downturn in trade in response to the COVID-19 pandemic might be wanting to end their lease early. We encourage tenants in this situation to communicate with their landlord or agent as early as possible to discuss their position and alternative options.
Tenants who want to end their lease early should first read their lease closely to check and confirm their rights and obligations. They should then request a meeting with the landlord and/or write to the landlord to ask for their agreement to an early lease exit, explaining their reasons for the request.
Where the landlord and tenant reach an agreement (often called a ‘surrender of lease’), it’s important for this agreement to be in writing and for it to include anything that the landlord and tenant have agreed to as part of the lease ending early.
What does a tenant need to do at the end of their lease?
When the lease ends, the lease might require the tenant to return the premises to its original condition. This could involve removing a fit-out that was installed, often referred to as to ‘make good’. Once the lease has ended, it’s recommended that the tenant writes to the landlord to confirm they have completed their obligations under the lease.
What happens if a tenant ends their lease early?
Ending or breaking a lease early means a tenant might be liable for paying the rent owed from the day they end the lease until the end of the agreed term of the lease.
The tenant might also need to pay the landlord’s costs of re-leasing, which could include advertising and other expenses to find a new tenant.
In this situation, a landlord has a duty to reduce their loss by actively trying to lease the premises to another tenant. If a landlord doesn’t do this, the tenant might be able to avoid the obligation of paying rent until the end of the lease.
What could prevent a tenant from getting the security deposit (bond) back?
The Retail Leases Act 2003 requires a landlord to hold a security deposit in an interest-bearing account and return the deposit together with the interest to the tenant within 30 days of the lease ending.
A landlord’s obligation to return the security deposit only applies where a tenant has completed their obligations under the lease. For more information, see the Victorian Small Business Commission’s (VSBC) web page on security deposits.
How the VSBC can help
If a commercial or retail tenant has tried to communicate with their landlord about their situation and requested an early lease exit but can’t get a response or reach an agreement, they can apply to the VSBC for mediation to help resolve their retail lease dispute.