Prompt Law Australia | Contract Review & Commercial Law Firm
Yes, but almost never by simply walking away. A commercial lease is a binding contract for a fixed term, and unlike a residential tenancy there is no statutory break fee that lets you buy your way out. Your realistic options are to assign the lease, sublet it, negotiate a surrender, rely on a break clause if your lease has one, or terminate because the landlord is in breach.
Which path is open to you depends on what your lease says, whether the Retail Leases Act 1994 (NSW) applies to your premises, and how much time is left on the term. This guide works through each option, what an early exit typically costs, and what to do if you have already stopped trading.
Need to get out of a commercial lease? Our commercial lease lawyers in Sydney can read your lease and tell you which exit is realistic, and what it will cost, before you commit to anything.
This is the option tenants ask about most, and it is the worst one available. Handing back the keys does not end the lease. Unless the landlord accepts your conduct as a surrender, the lease continues and rent keeps falling due.
The landlord generally has two choices. It can keep the lease on foot and sue you for rent and outgoings as each instalment falls due, or it can accept your abandonment as a repudiation, terminate the lease, and claim damages for the loss of the rest of the bargain. Either way the landlord can also call on your bank guarantee, pursue any director who signed a personal guarantee, and claim make-good costs for the condition of the premises.
There is one protection worth knowing. Where the landlord terminates and claims damages, it must take reasonable steps to mitigate its loss by trying to re-let the premises. A landlord cannot leave the shop empty for two years and send you the bill. What counts as reasonable is a question of evidence, which is why what the landlord did after you left often decides how much you ultimately pay.
Walking out does not end the lease. It converts a problem you can still negotiate into a debt claim you have to defend, usually with your bank guarantee already gone.
Every genuine exit falls into one of five categories. The right one depends on your lease terms, how attractive the premises are to another business, and how much time is left.
Pathway | What it involves | Best when |
|---|---|---|
Assignment | Transferring the lease to an incoming tenant, with the landlord’s consent | You are selling the business, or can find a suitable replacement tenant |
Subletting | Keeping the lease and granting rights to an occupier beneath you | You only need to exit part of the space, or for part of the term |
Surrender | Agreeing with the landlord to end the lease early, usually for a payment | No replacement tenant is available and you need certainty |
Break clause | Exercising an early termination right written into the lease | Your lease contains one and you can meet its notice requirements exactly |
Landlord breach | Terminating because the landlord has breached an essential term | The breach is serious, documented, and legal advice supports it |
Assignment is usually the cleanest exit, particularly if you are selling the business as a going concern. You need the landlord’s consent, but for a retail shop lease the landlord’s position is constrained by the Retail Leases Act 1994 (NSW). Under section 39, consent can only be withheld on limited grounds, including that the incoming tenant proposes to change the use of the shop, or has financial resources or retailing skills inferior to yours.
Section 41 sets out the procedure. You request consent in writing and give the landlord the information it needs about the proposed assignee. If the landlord then fails to give you written notice either consenting or refusing within 28 days, it is taken to have consented. Landlords are also prohibited from charging key-money for consent, although they can recover their reasonable legal and investigation costs.
Assigning the lease does not automatically end your liability. Many leases contain a “no release” clause, which keeps you on the hook if the incoming tenant later defaults, and keeps your guarantor on the hook too.
For retail shop leases there is a statutory answer. Section 41A of the Act releases an assignor from liability for amounts payable by the assignee after assignment, where the shop continues to be used for an ongoing business and the disclosure requirements are met. That means giving the incoming tenant an updated lessor’s disclosure statement and an assignor’s disclosure statement, and giving the landlord a copy, at least 7 days before the assignment. Get the paperwork wrong and the no release clause stands, so this is the single most valuable step in a retail assignment.
A sublease carves out rights beneath your lease, so you remain the tenant and remain fully liable to the landlord for rent, outgoings and the condition of the premises. If your subtenant stops paying, you still owe the landlord. Almost all commercial leases require landlord consent to sublet, and that consent is not governed by the retail assignment rules.
Subletting suits a business that needs to shed part of its space or exit for part of the term, or one that expects to return. If your goal is to be rid of the premises entirely, assignment or surrender is the better target.
The distinction matters more than most tenants expect, because it decides who carries the risk after you leave.
With an assignment, the incoming tenant steps into your shoes and deals directly with the landlord. With a correctly documented retail assignment you can also be released from future liability. The trade-off is that the landlord gets a say in who replaces you, and you will need an assignee the landlord cannot reasonably reject.
With a sublease, you choose your occupier and keep control of the space, but you remain the landlord’s tenant and you take the credit risk on your subtenant. In practice, assignment is the right answer when you want a clean break, and subletting is the right answer when you want flexibility and can live with continuing exposure.
A surrender is a negotiated end to the lease, documented in a deed. There is no fixed formula for the payment, but a landlord will usually want to be put roughly in the position it would have been in had you stayed. Expect the negotiation to cover:
The incentive clawback is the one that surprises tenants most, because the sum repayable can be tens of thousands of dollars on a fitout that was presented as free at the start of the lease.
Sometimes. If the landlord has breached an essential term, or has behaved in a way that shows it no longer intends to be bound by the lease, you may be able to accept that repudiation and terminate. Failures of quiet enjoyment, refusing to carry out structural repairs that make the premises unusable, or persistently interfering with access can all qualify, depending on the severity and the lease wording.
This is the highest risk exit of the five. If you terminate and a court or the Tribunal later finds the breach was not serious enough to justify it, your own termination becomes the repudiation and you are liable for the landlord’s loss. Build the record first: notify the breach in writing, give the landlord a reasonable chance to fix it, document the impact on your business, and take advice before you give notice. For a retail lease, the dispute path runs through mediation with the NSW Small Business Commissioner and then NCAT.
The situation: A retail tenant has two years left on a five year lease, trade has fallen away, and the business cannot carry the rent. The landlord holds a bank guarantee and the lease was granted with a six month rent-free incentive.
The approach: Test assignment first, because it is the only route that removes the liability entirely, and for a retail shop the landlord’s grounds for refusing are limited. In parallel, price a surrender so the landlord’s expectations can be met with a number rather than an argument, and read the incentive deed early so the clawback is part of the negotiation rather than a surprise at the end.
The point: An exit negotiated while you are still paying rent costs far less than one negotiated after you have stopped. The tenant who leaves first and negotiates second loses the leverage and usually the bank guarantee as well.
Early exits are won on the detail of the lease and on sequencing. Doing the right things in the wrong order is what turns a manageable exit into a damages claim.
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If you need to get out of a commercial lease, book a free 15-minute consultation with our commercial lease lawyers. We will read your lease, tell you which exit is realistic, and estimate what it will cost before you commit to anything.
This article is general information only and is not legal advice for your specific situation. Your options for ending a commercial lease early depend on the terms of your lease, whether the Retail Leases Act 1994 (NSW) applies, and your individual circumstances.
Yes, but not unilaterally. Unlike a residential tenancy, there is no statutory break fee for commercial premises. You will need to assign the lease, sublet it, negotiate a surrender with the landlord, exercise a break clause if your lease contains one, or terminate for a serious landlord breach. Which is realistic depends on your lease and how lettable the premises are.
The lease continues. The landlord can sue for rent as it falls due, or terminate and claim damages for the remainder of the term, and can call on your bank guarantee and any personal guarantee in the meantime. The landlord does have to take reasonable steps to re-let and reduce its loss, but abandoning the premises is the most expensive way to leave.
For a retail shop lease, only on the grounds in section 39 of the Retail Leases Act 1994 (NSW), which include a proposed change of use or an assignee whose financial resources or retailing skills are inferior to yours. If you follow the section 41 procedure and the landlord does not respond in writing within 28 days, it is taken to have consented. Non-retail leases are governed by the lease terms, which commonly require consent not to be unreasonably withheld.
Not necessarily, but you must do the paperwork. Many leases contain a no release clause that keeps you and your guarantor liable. For a retail shop lease continuing as an ongoing business, section 41A releases you from liability for amounts payable after the assignment if you give the incoming tenant an updated lessor’s disclosure statement and an assignor’s disclosure statement, and give the landlord a copy, at least 7 days before the assignment.
There is no fixed figure. A landlord will generally want rent and outgoings for the expected vacancy, re-letting costs such as agent’s commission and legal fees, repayment of any unamortised incentive, and make-good. The amount is negotiable and depends heavily on how quickly the premises can be re-let, which is why presenting a replacement tenant strengthens your position so much.
Possibly, if the landlord has breached an essential term or shown it no longer intends to be bound by the lease. It is the riskiest option, because a termination that is not justified becomes your repudiation and exposes you to the landlord’s loss. Notify the breach in writing, allow a reasonable chance to remedy it, document the impact, and get advice from a commercial lease lawyer before giving notice.
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