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Ending a lease
If you are considering exiting your lease and are unsure of your rights and obligations, you should seek independent legal advice before taking any action.
A lease can end for various reasons including:
- the lease term has expired
- you have sent or received a notice for a breach of lease (e.g. not paying rent)
- voluntarily by notice (for periodic tenancies)
- for another reason (e.g. redevelopment, mutual agreement).
If you end a lease early ('breaking the lease'), you may be liable for paying the rent owed from the day the lease is ended until the end of the agreed term of the lease. You may also have to pay other compensation set out in the lease.
Fixed term leases
A fixed term lease can be ended according to the terms and conditions set out in the lease. This may include:
- giving notice in a particular way
- giving a certain amount of notice
- completing documented 'make good' obligations.
If you want to continue the lease, you should write to the other party (or their agent) well before the expiry date and ask or offer to negotiate a new lease. Neither party is under any obligation to agree and any new lease may have different terms and conditions, higher rent, different guarantees, or other changes.
As this is a commercial negotiation, you should start this process early and be mindful that this is a matter between you and the other party.
As a tenant, unless both parties agree otherwise, you must vacate the premises when your lease term has expired.
Redevelopment and relocation
For a fixed term lease, a redevelopment clause may allow the landlord to end a lease early to renovate or redevelop the premises. In these circumstances you could find yourself without premises leading to severe impacts on your business.
If you have agreed to a relocation clause in your lease, check to see whether you negotiated to be paid compensation for loss of trade and to cover your relocation costs. Retail shop leases may also need to meet specific requirements that cover relocation of your business within the same centre.
Termination by mutual agreement
Under a fixed term lease, the landlord and tenant can mutually agree to end the lease early.
As a tenant, if you need to end the lease early, you should ensure that you discuss with your landlord and clarify in writing about 'making good' the premises and your financial obligations to each other.
A landlord is not obliged to release you from your agreement but they may be willing to negotiate if you are facing serious financial difficulties or other circumstances beyond your control. It is important to record any agreement in writing. Disputes commonly arise over claims of unmet obligations or misunderstandings of what is owing after the mutual termination of leases.
A periodic tenancy rolls on a weekly, monthly or yearly basis with no end date. The lease may be periodic from the start, or a fixed lease may end but the parties agree to continue the tenancy on a periodic basis. Periodic tenancies provide flexibility for tenants and landlords who may be unsure about the long term or only need a short-term arrangement.
Under a periodic tenancy either party can terminate the lease (without reason) by giving at least 1 whole period of notice. For example, if the period of the tenancy runs from the first day of the month to the last day of the month, either party could give the other a notice to terminate before the first day of the month which would take effect at the end of the following month. This could leave either party with as little as 1 month to vacate and 'make good' the premises.
You should consider the benefits and risks of a periodic tenancy and what you would do if you or the other party choose to terminate the tenancy.
Non-payment of rent
Your lease should set out the conditions relating to the payment of rent and the steps that may be taken for non-payment of rent. Your landlord generally has the right to recover from you all the rent and other costs, for example interest or legal fees. There are exceptions to this during the coronavirus (COVID-19) emergency.
Find out more about negotiating commercial rent relief during COVID-19.
Giving notice to terminate a lease
Use the following forms to give notice to terminate a lease:
- Form 08 – Notice to tenant (PDF, 11KB) or (DOC, 28KB)
- Form 09 – Notice to landlord (PDF, 11KB) or (DOC, 26KB).
Consider your options carefully as most fixed term leases also contain conditions that allow the landlord to recover legal costs incurred in relation to the lease, including the cost to have a legal practitioner serve a notice to terminate on a tenant.
Make good provision
When a tenant leaves the premises, they will generally be required to leave the premises in the condition it was in at the start of the lease. This is known as a 'make good' provision. Disputes commonly arise in relation to the definition of and compliance with make good provisions. You should ensure this is clearly defined in the lease, as well as keeping a record of the condition of the premises when you started the lease.
For fixed term leases, there may be a general make good clause or there may be other specific make good clauses. For example, this could involve cleaning the premises, repairing any damage, removing fixtures or fittings, replacing carpets and repainting.
For periodic tenancies, as a tenant you are generally obliged to repair damage you or others (on the premises with your permission) have caused. You and your landlord should consider the condition at the start of the lease (excluding damage from fire, flood, lightning, storm and reasonable wear and tear) and should negotiate any repairs when the notice to terminate is given.
If you do not fulfil your obligations under the lease when you leave, your landlord may carry out the work and take the cost from your bond or bank guarantee. If you are unsure what this means for your lease, discuss this with your landlord or seek independent legal advice.
Make sure you allow enough time at the end of your lease to complete the 'make good' requirements. Record any agreements about make good in writing.
Recovering your bond, deposit or bank guarantee
As a tenant, if you have reasonably fulfilled your 'make good' obligations, the landlord should give back your bond, deposit or bank guarantee.
However, there may be other conditions under a fixed term lease that must be satisfied before this can occur. For example, there may be penalties in your lease agreement for ending a fixed term lease early or not complying with the terms and conditions of your lease.
In some circumstances a landlord may be able to lawfully take all or part of your bank guarantee, bond or deposit if you fail to fulfil your obligations when ending the lease.