Renting a shop - terminating the commercial lease

[martino]

Hi all,

My partner (the lessee) is looking at moving out of a shop that she currently rents due to some recently-changed circumstances. She is currently seeing out a 2 year extension to the original lease. The lease appears to be a standard REIV 2003 commercial lease with no specific clauses on terminating the contract.

The agent has suggested that she would need to pay rent and outgoings until the end of the contract, unless she personally secures an alternative tenant which is approved by the lessor and organises the appropriate transfer documentation.

Is this what is typically involved in cancelling a commercial lease?

It does seem pretty straightforward, but any insight or suggestions on possible options for this scenario would be much appreciated.

 

[HiEquity]

Leases are binding contracts on both parties and cannot be cancelled. There would be no clause for terminating the contract because such a course of action is fundamentally at odds with the purpose of the lease, which is to bind both parties for the duration of the lease.

I suggest you look at the clauses on "assignment", "sublease" or "novation". These would typically outline the requirements for the lessor to accept a different tenant. Generally they say that the assignee needs to be acceptable to the landlord but the landlord needs to be reasonable and not just reject everyone for the sake of it (words to that effect).

But you need to check the lease for the relevant wording. If you can't find anyone suitable for the landlord then it's quite likely you will need to keep paying the rent and outgoings until the end of the lease. Unless you can somehow get the landlord to agree to something else - good luck with that!

 

[Dazz]

The lease appears to be a standard REIV 2003 commercial lease with no specific clauses on terminating the contract.

The reason there are no specific clauses for terminating the contract, is because the Landlord is counting on the revenue coming in from the contract and has no desire to let the Tenant out of a legally binding obligation to provide that revenue.


We aren't in the world of Mickey Mouse residential Leases where as a Tenant you can just up and leave at no cost with no notice.


Those recently changed circumstances are simply going to have to be put to one side. Whatever they are, they are not as important as the Lease obligations the Tenant bound themselves to when they signed up.


The quickest way out of the Lease is to simply pay the full amount of the rent and outgoings for the remaining term to the Landlord.

 

[chilliblue]

The reason there are no specific clauses for terminating the contract, is because the Landlord is counting on the revenue coming in from the contract and has no desire to let the Tenant out of a legally binding obligation to provide that revenue.


We aren't in the world of Mickey Mouse residential Leases where as a Tenant you can just up and leave at no cost with no notice.


Those recently changed circumstances are simply going to have to be put to one side. Whatever they are, they are not as important as the Lease obligations the Tenant bound themselves to when they signed up.


The quickest way out of the Lease is to simply pay the full amount of the rent and outgoings for the remaining term to the Landlord.

and consider yourself lucky that you are not having to pay their legal and administrative costs as well.

Is there any chance she could sell the business WIWO and have someone take on the lease?

 

[martino]

Leases are binding contracts on both parties and cannot be cancelled. There would be no clause for terminating the contract because such a course of action is fundamentally at odds with the purpose of the lease, which is to bind both parties for the duration of the lease.

I suggest you look at the clauses on "assignment", "sublease" or "novation". These would typically outline the requirements for the lessor to accept a different tenant. Generally they say that the assignee needs to be acceptable to the landlord but the landlord needs to be reasonable and not just reject everyone for the sake of it (words to that effect).

Thanks, appreciate the input. Will review the lease again, however my thinking is that she needs to engage a solicitor to look at the lease to better understand options.

and consider yourself lucky that you are not having to pay their legal and administrative costs as well.

Why would the lessee pay these if they are paying out the lease as is being suggested above? Perhaps I've misunderstood your point.

I would certainly expect these would need to be paid if the lessee was able to find another tenant to transfer the lease to.

Is there any chance she could sell the business WIWO and have someone take on the lease?

The business will continue to be run from home rather than from a shopfront.

Thanks all for input.

 

[Dazz]

The business will continue to be run from home rather than from a shopfront.

Don't quite understand that one, when she has already committed to pay for the shopfront ??

 

[handyandy]

Thanks, appreciate the input. Will review the lease again, however my thinking is that she needs to engage a solicitor to look at the lease to better understand options.

If she engages a solicitor then she will be paying for the same advice you have already received.

Cheers

 

[Terry_w]

Its hard to say if getting a solicitor to look at the lease would be a waste of time or not.

It may turn out that the lease isn't binding and that may give you a way out but it may turn out that it is binding too and then you would have the solicitor fee to pay still.

 

[chilliblue]

Don't quite understand that one, when she has already committed to pay for the shopfront ??

And will be paying for said shopfront whilst working from home.

[QUOTE Why would the lessee pay these if they are paying out the lease as is being suggested above? Perhaps I've misunderstood your point. [/QUOTE]

In my leases, the landlord is not be out of pocket whatsoever if a tenant wishes to break / assign a lease.

This means that all of the vendors legal fees for the surrender documents and the new tenants lease documents as well as any leasing fees are to be paid directly by the outgoing tenant.

These are in addition to any rental and outgoings outstanding.

 

[Ausprop]

will also - subject to terms of lease - need to make good any damage, clean up, remove any signage, oil spills etc, service the aircons, replace broken light fittings, globes etc and there may be a provision to repaint inside and out? It's all in the lease

 

[martino]

Its hard to say if getting a solicitor to look at the lease would be a waste of time or not.

It may turn out that the lease isn't binding and that may give you a way out but it may turn out that it is binding too and then you would have the solicitor fee to pay still.

Thanks Terry - appreciated.

 

[Deltaberry]

Unlike residential leases where poorly-paid VCAT officers get angry and try to send residential landlords to prison for trying to hold their tenant to their end of the bargain, there are much fewer exit rights for commercial leases where two business-minded people come together and agree on the terms and conditions of their bargain.

Generally speaking commercial landlords also will not hesitate to bankrupt you if that's what it takes to get their money. We've certainly met our fair share of landlords who have tried to take us down.

The last time our (commercial) tenant decided not to pay the rent (10 years ago), the only out he had was to flee the country. Of course, we froze his passport. If you really wanted to do a dodgy on the landlord, you may be considering this strategy. I can tell you he's never been back to this country.

And Ausprop also has a point about make-good the place. Last time we vacated one of our businesses (a few months ago) from a major shopping center, we spent some $50k making good the place.

 

[chindonly]

Agree totally with Hi Eq's comments.

Best scenario is usually to try and get an assignment to another party approved.

Landlord will not want to have any extra expenses though - and there will need to be a deed of assigment that usually still keeps the original lessee liable should the assigning party default.

Have been through three of these in the last 18 months.

 

[Aaron_C]

Landlord will not want to have any extra expenses though - and there will need to be a deed of assigment that usually still keeps the original lessee liable should the assigning party default.

If that were the case then what's the point of an assignment? You might as well sub-lease.

 

[Terry_w]

The point of assignment is to remove yourself from the picture. If you sublease then you still have the hassle of the subtenants not performing and then you being left with the problem.

 

[chindonly]

The point of assignment is to remove yourself from the picture. If you sublease then you still have the hassle of the subtenants not performing and then you being left with the problem.

Correct. Keeps the original lessee out of the day to day loop.

Also, some contracts don't allow you to sub-lease.

From a landlord's perspective, the assignment conditions came in handy when the new tenant started to breach conditions. The assignor started chasing them up (after prompting by us), as they knew they were liable!

 

[Scott No Mates]

The point of assignment is to remove yourself from the picture. If you sublease then you still have the hassle of the subtenants not performing and then you being left with the problem.

I would hasten to add that both assignments or subletting requires lessor consent. In either case the current tenant is usually required to guarantee the performance of the assignee or sublessee.

It may be possible to negotiate an early payout for a lesser sum than the value remaining on the lease especially if there is greater demand for the premises.

 

[Bird Dog]

It may be possible to negotiate an early payout for a lesser sum than the value remaining on the lease especially if there is greater demand for the premises.

Which brings us back to one of the oldest laws in the commercial bible…. ”everything is negotiable”.

It will all come down to $$$$ and what’s in the contract so establish your best and worst case scenarios and then ask the question of the landlord. You may be surprised what comes back but if you never ask the question to begin with, you’ll never know what all your options are.

Good luck
B.D