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As a business owner, your business will always be changing and fluctuating. Sometimes, these changes may mean that you wish to stop the lease for your business premises before the end date. However, discontinuing your lease can be a confusing process. Furthermore, if you do not do this correctly, you could risk breaching a clause of your lease. This article will detail four options available to you as a tenant when you do not want to continue with your lease. 

1. Mutual Agreement With Your Landlord

Just as you reach an agreement with your landlord to enter your lease, you may also reach an agreement to end your lease. As a tenant, giving up your lease before it expires is termed a ‘surrender’. Surrender of your lease will relieve both you and your landlord of any obligations you had under the tenancy, including the requirement for you to pay rent. To do so, you and your landlord should agree to surrender. 

To be effective, an agreement to surrender a lease must:

  • be recorded in writing;
  • contain all of the terms of the surrender, including the date you will surrender your lease; 
  • be consented to and signed by both you and your landlord; and
  • if your lease is registered, be lodged to Land Information New Zealand (LINZ) for registration.  

If you surrender your lease without your landlord’s consent, this will constitute a breach of your tenancy agreement.

To agree to surrender, your landlord may request an exit payment. Think of this as buying your way out of your lease. The sum of this payment will depend on a wide range of matters, such as the:

  • terms of your lease;
  • amount of time remaining on your lease;
  • size of the property; 
  • rent; or 
  • difficulty of finding a new tenant. 

2. Assigning or Transferring Your Lease

A lease assignment, or transfer, is when you, as the tenant, assign your rights and obligations under a lease to a new person or business. As this new person replaces you as a tenant, you are relieved of your obligations under the lease. 

The most common method to assign your lease is through a deed of assignment. A deed of assignment will usually contain:

  • the names of the parties involved;
  • a description of the lease;
  • the obligations and rights this new tenant is taking on; 
  • the date the assignment takes place; and
  • a clause that indicates the landlord has consented to the assignment.

However, your lease may contain a provision that prohibits assignment. Before you find a replacement tenant, ensure that your lease allows you to assign your obligation to another person or business. 

3. Subletting Your Lease

When you sublet your lease, you, as a tenant, move out of your commercial premises and rent it out to someone else for a fixed period.

To sublet your premises, you and this new person or business (the sublessee) will enter into a subletting agreement. Under this agreement, you are now the landlord to the sublessee. 

However, unlike an agreement to surrender or a deed of assignment, you still retain your obligations as a tenant. If the sublessee fails to pay rent or causes damage to the property, your landlord may come to you for compensation. This is because your original lease with your landlord does not terminate when you sublet your premises. If you do not want to retain your obligations under your lease, subletting may not be the best option for you. 

If you do wish to sublet, you must first get the written consent of your landlord. You should also ensure that your lease allows for subleases. If you do sublet your premises without your landlord’s permission, or despite a provision in your lease prohibiting subletting, you may risk being fined or your landlord placing an order to terminate the lease. 

4. Early Termination Clause 

There may be a clause in your lease that governs what you as a tenant should do if you wish to leave your lease before it expires. Such provisions are termed ‘early termination clauses’.

However, commercial leases do not always include such clauses. It is essential that you read through your lease and, if there is an early termination clause, ensure that you follow the outlined method. Following the specified process will ensure that you do not breach your lease. 

Key Takeaways

Sometimes, you may wish to leave your commercial lease before it expires. However, whether you have a fixed-term tenancy or a longer-term lease, you cannot merely end your lease. How you go about leaving your lease, and whether you can at all, will depend on:

  • whether you can enter into an agreement with your landlord; 
  • what is allowed or prevented by your lease; and
  • to what extent you would like to retain your lease obligations. 

Regardless of which option you decide upon, you must follow the necessary steps to avoid breaching a condition of your lease. You must give your landlord notice as soon as possible of the option you decide to choose. 

If you are looking to get out of your lease obligations or require general legal advice, LegalVision’s tenancy lawyers can help. Call us on 0800 005 570 or complete the form on this page. 

Frequently Asked Questions

What is it called when a lease ends?

When a lease ends early, that means it has either been terminated or cancelled. However, a lease will end at the date specified in the lease agreement.

What is it called when someone takes over your lease?

Someone taking over your lease is called an assignment.

What does it mean when a lease ends?

When a lease ends, so do any obligations the landlord and the tenant have, and the tenant can no longer occupy the premises. Such obligations include having to pay rent.

How do you end a lease?

You can end a lease by: an agreement with your landlord; or following the proscribed method in your early termination clause. However, if these options are not available, consider assigning or subletting your lease.

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