When a commercial tenant ends a lease early, it can create uncertainty, lost income, and administrative burden for landlords. Whether the tenant has defaulted, gone into insolvency, or simply wishes to leave early, landlords must respond decisively and lawfully to protect their property and financial interests.
This guide, prepared by our commercial lease lawyers, explains your legal rights, practical options, and best-practice steps when a commercial lease ends before its expiry date.
Key Takeaways
A landlord can terminate or accept early lease termination only through breach procedures, mutual surrender, or another contractual right.
Formal notices must meet strict content and timing requirements.
Assignment, sub-letting or lease variation may offer commercial alternatives to ending a lease.
Always follow correct procedures when calling on security bonds or guarantees.
Maintain detailed condition reports and evidence to support recovery of make-good costs.
Mitigation of loss is a legal duty – act promptly to re-let the property.
A well-drafted Deed of Surrender can help protect both parties and finalises the arrangement.
Legal Options for Landlords
1. Termination for Breach
If a tenant fails to pay rent or breaches another essential term, you may issue a Notice of Default.
A compliant notice should:
Specify the exact breach (e.g. unpaid rent amount or failure to maintain insurance).
Provide the rectification period required under the lease.
State the manner of service (email, post, or hand delivery) consistent with lease provisions.
If the tenant does not rectify the breach, you may then issue a Notice of Termination and lawfully take possession.
Legal Tip: Timeframes can differ between breach-related defaults and abandonment scenarios. Always review your lease before issuing any notice.
2. Accepting a Surrender
When a tenant seeks to vacate early, you can negotiate a surrender in exchange for compensation.
Key steps:
Confirm the amount covering rent, make-good, and re-letting costs.
Draft a formal Deed of Surrender.
Regain possession and prepare to re-market the property.
A commercial decision may be better than pursuing litigation – particularly if the premises can be quickly re-let.
3. Assignment or Sub-Letting
Instead of terminating, a tenant might request to assign or sub-let the lease. You may allow this if:
The replacement tenant is suitable; and
The outgoing tenant covers re-letting costs.
This approach can reduce vacancy time and maintain cash flow without ending the lease outright.
4. Lease Variation
If you have a good commercial tenant and you’d like to keep them on, another alternative may be to negotiate a temporary rent reduction, shorter term, or modified use rights.
A Deed of Variation can preserve the tenancy relationship while meeting both parties’ needs – avoiding termination altogether.
If you’re renegotiating lease terms instead of ending the agreement, our article on tips for negotiating a commercial lease provides strategies to achieve a fair outcome.
Retail Leases Act Considerations
If your property falls under a retail lease, specific rules under the Retail Shop Leases Act 1994 (Qld) (or equivalent legislation in other states and territories) may affect how an early termination is handled.
These Acts often:
Impose additional disclosure and notice requirements;
Restrict certain recovery rights for landlords (for example, key-money or certain legal costs); and
Provide protections for retail tenants when negotiating a surrender or dealing with make-good obligations.
Because retail leases are regulated differently from general commercial leases, landlords should confirm whether the tenancy is classed as “retail” and ensure all actions (including issuing notices or negotiating a Deed of Surrender) comply with the relevant Retail Leases Act.
Legal Tip: If you manage multiple properties across states, be aware that each jurisdiction (e.g. NSW Retail Leases Act 1994, VIC Retail Leases Act 2003) has its own rules and timelines.
Financial Considerations
Lost Rent and Re-Letting Costs
Typically, landlords can recover:
Rent and outgoings until the property is re-let.
Advertising and agent’s fees.
Reasonable legal and administrative costs.
You must, however, take reasonable steps to mitigate this loss (see below).
If the lease included rent-free periods or fit-out contributions, consider whether any lease incentives need to be repaid when the tenant surrenders early.
Security Bonds and Bank Guarantees
If the tenant defaults or surrenders early:
Review the lease for notice obligations before calling on the bond or guarantee.
Provide written notice to the tenant (or guarantor) detailing the intended drawdown.
Retain all invoices, inspection reports, and correspondence as evidence.
Once verified losses are met, return any unused balance to the tenant.
Tenant Insolvency
If a tenant enters administration or liquidation:
Contact the external controller promptly and provide a proof of debt for unpaid rent or damages.
Avoid disposing of tenant fixtures until you confirm ownership and rights.
Seek legal advice before re-entering or re-letting to ensure compliance with insolvency laws.
Preserving evidence and communication helps secure your position in the recovery process.
When calculating compensation or settlement payments, landlords should also review responsibility for outgoings in commercial leases to ensure all recoverable costs are correctly claimed.
Mitigation of Loss - Practical Strategies
Landlords have a legal duty to mitigate their losses.
Practical steps may include:
Appointing multiple leasing agents at competitive commission rates.
Listing the property on digital platforms within 48 hours of vacancy.
Considering short-term licences or pop-up leases to generate interim income.
Refreshing marketing materials and photographs immediately after the tenant vacates.
Quick, proactive action reduces the period of rent loss and strengthens your claim for damages against the outgoing tenant.
If you’re reviewing lease terms for future tenants, our guide on common red flags in commercial leases highlights clauses that may cause problems down the track.
Real-Life Examples: Ending a Commercial Lease Early
Example 1: Retail Tenant Default
A retail tenant failed to pay rent for three months.
The landlord issued a Notice of Default specifying arrears and giving 14 days for the tenant to rectify. When payment was not received, a Notice of Termination followed, and lawful re-entry occurred.
The landlord was able to re-let the premises within six weeks and recovered remaining losses from the tenant’s guarantor.
Example 2: Office Lease Surrender
A corporate tenant requested early termination due to downsizing.
The landlord agreed to a Deed of Surrender, receiving three months’ rent and completion of make-good obligations and works. The property was re-leased quickly, and the parties maintained a positive commercial relationship.
Example 3: Industrial Tenant Insolvency
When a warehouse tenant entered liquidation, the landlord promptly contacted the liquidator, secured the premises, and filed a proof of debt.
The bank guarantee covered part of the rent shortfall, and fixtures were lawfully retained under the lease’s ownership clause.
Checklist for Landlords
The following checklist outlines the essential steps landlords should take when managing an early lease termination:
- Review the lease for default, surrender, and assignment clauses.
- Issue formal notices with correct content and delivery method.
- Conduct pre-vacate inspection and take photographic evidence.
- Call on the bond/guarantee following proper notice.
- Keep a detailed record of losses and mitigation steps.
- Consider assignment, sub-letting, or lease variation to reduce vacancy.
- Negotiate and execute a Deed of Surrender when applicable.
- Hold a final handover meeting and sign completion documentation.
- Seek tailored legal advice before finalising any early termination.
Ending a commercial lease early can involve multiple moving parts – from serving notices to documenting make-good works and recovering costs. Use this list as a quick reference to ensure you’ve covered every key requirement before, during, and after the handover.
Unsure what your next step should be? Our experienced Brisbane commercial leasing lawyers can review your lease and help you act confidently.
Frequently Asked Questions
Can I refuse a tenant’s request to end a lease early?
Yes. Unless the lease allows for early termination, landlords are not obliged to agree. However, a negotiated exit may be commercially beneficial.
Need guidance on managing an early lease termination? Speak with our team of commercial leasing lawyers for practical, tailored advice.
What must a Notice of Default contain?
It should state the precise breach, specify the rectification timeframe, and outline how and when the notice is served. Always comply with the lease’s notice provisions.
If you’re preparing to issue a Notice of Default or negotiate a surrender, contact Prosper Law to ensure your documents are legally sound.
When can I draw on the commercial tenant’s bond or guarantee?
After issuing notice of intention and confirming your verified losses. Any remaining balance must be returned once obligations are met.
What if the tenant abandons the premises?
You can issue a notice of abandonment and, after the required period, re-enter lawfully. Continue to mitigate losses and document all actions.
Get clarity before you act. Prosper Law can explain your rights, obligations, and options under Australian commercial leasing law.
Why should I obtain legal advice?
Commercial lease termination involves strict legal and procedural requirements. Professional advice ensures compliance, protects your recovery rights, and avoids potential disputes.
Managing an early lease termination is a balance between enforcing rights and making sound commercial decisions. With clear procedures, thorough documentation, and timely legal advice, landlords can recover losses, maintain compliance, and protect long-term property value.
