A tenant usually cannot terminate a commercial lease before the lease term is over without facing liability, unless the lease allows for early termination. Commercial leases usually last for a fixed period of time, such as five or ten years. In a commercial fixed term lease, tenants are bound by the lease until the lease ends, even if the business fails or if the premises are vacated.
What Liability Can I Face If I Terminate a Lease Early?
If a commercial lease is terminated before the end of the lease term, the non-breaching party, i.e. the person that did not terminate the lease early, can seek money damages for the breach. Such damages are often very difficult to measure and leases often stipulate that the person who breached pay liquidated damages, which is an agreed upon flat sum of money.
The lease may also contain an acceleration clause, which requires that the breaching party fully perform the contract, meaning that the entire amount of rent for the full term of the lease will become due once the tenant terminates his or her lease early. Many leases also provide that in a dispute the winning party will be awarded attorney's fees.
Can I Terminate a Commercial Lease Early Without Liability?
You can only terminate a commercial lease before the lease term is over without liability only if there is a provision in the lease that allows for early termination. The most common clauses in a commercial lease that allow for early termination without liability are as follows:
- Break Clause: A break clause gives a tenant or a landlord the option to terminate a lease at least once during the term of the lease. The break may be used by the landlord or the tenant only when the conditions of the break clause have been met. There is no universal break clause as break clauses can vary depending on whatever conditions the tenant and landlord decides is right for them.
- Assignment: An assignment is when a party transfers all interest in a leased property to another party before the original lease expires. An assignment is only possible if allowed by the lease.
- Breach: Usually leases have a provision that allows for termination by either party if the other party commits a material breach of the lease.
- Modification: The landlord and the tenant can always agree to modify the length of the term at any time during the lease.
Do I Need an Attorney If I Want to Terminate My Commercial Lease Early?
Commercial real estate law is complex, differs by jurisdiction, and varies depending on the terms of the lease. A real estate attorney can ensure that your interests are well represented when you negotiate a commercial lease. A real estate attorney can also provide assistance and legal guidance concerning the right to terminate a commercial lease before the lease term expires.