Tenants must be aware that there are economic and practical consequences of terminating a commercial lease before the expiry date. The specific terms of the lease as well as relevant laws will determine the process and the extent of any negative financial implications.

Generally speaking, a tenant should consider the following before breaking a commercial lease:

• The lease agreement: Review the terms of the lease to identify if it contains an early termination clause and if so, what conditions apply. The tenant should also consider what it will cost to meet their obligations at the end of the lease (for example, how broad is the make good clause – how much would reinstatement or redecoration cost?
• Incentives: did the tenant receive an incentive at the commencement of the lease? If so, does the lease include an incentive clawback if the lease ends before the end of term? If there is a clawback, consideration should be given to whether it is even enforceable or if it would be considered a penalty.
• The reason for breaking the lease: some landlords may be more willing to work with tenants if the reason for breaking the lease is beyond their control, such as a natural disaster or a significant decline in business.
• Alternative solutions: Consider whether subletting the space or assigning the lease to another tenant would be a viable option before breaking the lease outright.
• The cost of breaking the lease: If the lease includes a clause that allows the tenant to break the lease early, the tenant may be exposed to an early termination fee and/or required to pay the remaining rent due under the lease.

This is not intended to be an exhaustive list of items that should be considered as every lease is different. For this reason, it is recommended that level advice is sought before taking any steps to terminate a commercial lease prior to its expiry date.

Arena Law is well placed to assist with queries in this area and to offer commercial and practical solutions where a tenant finds themselves considering a lease termination.