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Most business owners who need to exit a commercial lease early assume the negotiation comes down to one question: will the landlord accept a settlement to release them from remaining obligations?
But landlords aren't just calculating "current rent versus vacancy cost." They're thinking about re-letting expenses, whether market timing might support a rent increase if they wait, how your exit affects their financing arrangements, and whether your business has maintained the property or they're facing make-good costs. Understanding what actually drives their decision - and how your specific situation affects your position - determines whether requesting early exit makes sense and what approach might work.
What is commercial lease early termination? Ending your lease before the agreed term expires through negotiated agreement with your landlord. Very few commercial leases include early termination rights - most require landlord agreement to exit before term end.
When does it matter? When business circumstances change - relocation, downsizing, closure, or simply that the premises no longer suit your needs - and remaining in the lease no longer makes commercial sense.
Key insight: Successful exits aren't about landlords being "reasonable" or "difficult." They're about whether you can structure an approach that addresses what the landlord is actually calculating while protecting your interests. Most of what determines outcomes happens before terms are discussed.
Why professional guidance helps: Understanding what landlords factor into their decision, recognising what your lease terms and circumstances do to your position, and positioning an approach that might actually work requires reading your specific situation - not just knowing what's theoretically possible.
Read through and consider what your lease actually says about assignment and subletting - not whether you have contractual exit rights (most leases don't), but what alternatives exist to negotiated release. Consider how market conditions affect both your alternatives and the landlord's re-letting confidence. Your business circumstances matter, but so do the landlord's property plans and financing structure.
This is about understanding whether the dynamics of your situation create opportunity for negotiated exit, or whether you're better off exploring assignment or simply seeing out the term. Professional guidance is particularly valuable when you're not sure what your position is actually worth or how to position a request that might work.
Most tenants approach lease exit thinking landlords just weigh "remaining rent vs vacancy risk." But the calculation is more complex.
Financial factors landlords consider:
Landlords think about re-letting costs - agent fees, marketing, legal work - which represent significant expense. They're calculating likely void period based on current market conditions, not just assuming immediate re-let. If they think the market might support a rent increase in coming months, waiting could be worth more than accepting early exit now.
Whether your exit timing aligns with their property plans matters. A landlord planning renovations or considering sale might welcome early vacancy. One who's just refinanced based on tenancy may face loan covenant issues if occupancy drops.
Property condition considerations:
Whether you've maintained the premises or they're facing make-good disputes affects the equation significantly. If they expect handover in good condition, early exit might be simpler than anticipated lease-end complications. If they think you'll fight about make-good costs, that changes their risk assessment.
Commercial property owners often have multiple properties. Your lease might be part of portfolio financing where vacancy percentage matters, or it might be an individually held asset where different considerations apply.
What this means for your approach:
The gap between "I need to exit" and reaching agreement requires understanding these dynamics. Landlords with strong re-letting confidence in good markets calculate differently than those facing soft markets with longer void periods expected. Your lease structure - whether retail (with statutory protections) or pure commercial - affects what's possible.
When landlords think they can achieve better rent by waiting, or when your exit creates financing complications they'd rather avoid, the math works against negotiated early exit regardless of what you offer. When your circumstances align with theirs - perhaps they were planning property changes anyway, or market is strong and re-let seems straightforward - opportunity exists even with substantial remaining term.
What your lease says matters more than most tenants initially realise and virtually no commercial leases include tenant rights to early termination.
Why early termination clauses are rare:
Landlords grant long-term security through lease terms for their benefit as much as yours, they want certainty about income and occupancy. Including tenant termination rights undermines this certainty, which is why such clauses appear in almost no commercial leases.
This means requesting early exit is asking the landlord to agree to something you have no contractual right to which fundamentally affects the negotiation dynamic.
Assignment and subletting provisions:
What your lease says about assignment affects your alternatives to negotiated exit. Leases that prohibit assignment entirely leave you negotiating release as your only option besides seeing out the term. Those allowing assignment with landlord consent (which most do) create different dynamics - you might be able to find replacement tenant rather than asking landlord to release you completely.
Whether assignment requires landlord consent "not to be unreasonably withheld" versus "at landlord's absolute discretion" changes what's possible. Under NSW law, retail leases face tighter restrictions on landlord refusal than pure commercial leases.
Subletting provisions matter similarly. Some leases permit subletting with conditions, others prohibit entirely. Understanding what's actually permitted helps determine whether negotiated exit is your only path or if alternatives exist.
Make-good and other obligations:
Make-good clauses that require "return to original condition" or "remove all tenant improvements" create obligations that affect both exit negotiation and your final costs. Vague make-good language often causes lease-end disputes - this is something that experienced landlords know and factor into their exit calculations.
When make-good obligations are substantial and poorly defined, landlords sometimes prefer negotiating early exit with agreed handover condition rather than facing potential disputes at scheduled lease end.
Why this creates complexity:
These provisions don't work independently, they interact with your circumstances and landlord's position in ways that make each situation different. A tenant with assignment rights in strong market faces different calculation than tenant prohibited from assigning in soft market, even with similar remaining terms.
Your business situation affects negotiation dynamics in ways that aren't always obvious.
Time pressure:
If you need immediate exit - perhaps relocating urgently or closing business - that time pressure weakens your position. Landlords recognise when tenants can't afford to wait, which affects how they respond to requests.
Conversely, if you can be flexible about timing, that creates negotiating room. Being able to offer extended notice period to align with landlord's re-letting plans versus demanding immediate release changes the conversation.
Your alternatives:
Whether you have genuine alternatives affects your position. If assignment is possible and you can find suitable replacement tenant, that's leverage in exit negotiations. If you're locked into the location for business reasons, landlords know walking away isn't really an option.
Property maintenance:
Whether you've maintained the property well or landlord faces likely make-good disputes affects their calculation. Tenants who can offer clean handover in good condition have something to trade. Those facing probable make-good arguments may find landlords preferring to deal with exit rather than lease-end disputes.
Market conditions:
Whether it's a landlord's or tenant's market matters significantly. In strong markets where landlords have re-letting confidence, they're less motivated to accept early exit. In soft markets where void periods run long, negotiated exit might align with their interests—particularly if you can assist with new tenant search or provide extended notice.
The assumption that "reasonable" landlords should negotiate:
Most tenants approach this thinking landlords should be reasonable about early exit requests. But landlords aren't being unreasonable when they calculate that waiting serves their interests better than accepting early exit, even with substantial settlement payment.
The question isn't whether landlords are reasonable. It's whether your request aligns with their actual position and interests.
The belief that offering "fair" payment secures exit:
Tenants often calculate settlement amounts they consider fair and expect landlords to accept. But what matters isn't whether your offer seems fair - it's whether it makes more sense to the landlord than their alternatives.
If they think market will support rent increase soon, your settlement offer might be less attractive than waiting. If they face financing issues from vacancy, even generous settlement might not address their actual concerns.
The impact of retail versus commercial lease classification:
Retail leases in NSW (governed by Retail Leases Act 1994) include protections that pure commercial leases don't. Understanding whether your lease qualifies as retail affects what rights you have and what landlords can require.
Retail lease classifications sometimes surprise tenants as whether premises qualify depends on use, not just property type. A health clinic in retail premises might be commercial lease while coffee shop is retail, with different legal frameworks applying.
Thinking assignment and early exit are the same:
These are different approaches with different implications. Assignment means finding a replacement tenant who takes over your lease - you're not asking landlord to release you, you're asking them to accept new tenant. Early exit means negotiating to end the lease entirely with settlement for remaining obligations.
Understanding which approach suits your situation requires knowing what your lease permits and what makes commercial sense. Sometimes assignment is possible where negotiated exit isn't, or vice versa.
When you're in a company structure:
If your business operates through a company that's the lease tenant, and you're considering just closing the company, understand that directors can face personal liability if the company defaults on lease obligations. Liquidating a company doesn't eliminate lease obligations - it just means the landlord pursues directors under any personal guarantees given.
Many commercial leases require director guarantees, which means you remain personally liable even if the company closes. Walking away by shutting down the company typically creates more problems than proper exit negotiation.
Most tenants underestimate what determines whether lease exit negotiation succeeds.
It's not just what your lease says:
Your lease terms matter, but they interact with landlord circumstances, market conditions, and your business realities in ways that require judgment. Two tenants with identical lease provisions might face completely different dynamics based on when they're requesting exit, what market conditions exist, and what landlords are dealing with.
Landlord motivations aren't always apparent:
You might not know whether landlord is planning property sale, facing financing pressures, dealing with portfolio vacancies elsewhere, or thinking market conditions favour waiting. These factors affect their response more than the settlement amount you offer.
Understanding what actually drives their position - and whether your request aligns with their interests - requires more than assuming "they just want money."
Positioning matters more than calculation:
How you structure and position an exit request affects outcomes as much as what you offer. Approaching landlord with "I need out immediately, here's my settlement offer" creates different dynamic than "I'm relocating in four months, can provide clean handover and assist with new tenant search, would you consider negotiated exit?"
The commercial reality is that most successful exits aren't about one party "winning" - they're about finding structure that addresses both parties' actual needs given specific circumstances.
What experienced practitioners recognise:
Often what determines success isn't following a formula - it's reading the situation, understanding what matters to the other party, and structuring an approach that might actually work.
Sometimes that means recognising negotiated exit isn't realistic and exploring assignment instead. Sometimes it means understanding your timing aligns with landlord's plans in ways that create opportunity. Often it means identifying factors you can address (handover condition, new tenant assistance, timing flexibility) that matter more to landlords than headline settlement amount.
This requires commercial judgment about what's actually possible and how to position an approach that serves both parties' interests.
Consider two retail tenants, both wanting to exit leases with two years remaining:
Tenant A operates in strong northern Sydney retail area. Market conditions are good, comparable premises are leasing quickly at similar or higher rents. The landlord owns the property individually without portfolio financing concerns. Tenant A needs immediate exit due to business closure and makes a settlement offer representing substantial portion of remaining obligations.
Tenant B operates in softer suburban market. Landlord recently refinanced using this property in portfolio, and bank covenants require maintaining occupancy levels or income to debt ratios. The premises would likely sit vacant several months based on current market. Tenant B can provide extended notice period and assist with new tenant search, offering lower settlement amount.
What actually happens:
Landlord A declines Tenant A's offer. In strong market with good re-letting confidence, waiting makes more sense than accepting settlement now. They think they can achieve higher rent soon, and re-letting costs plus short void period are worth it for long-term gain.
Landlord B negotiates with Tenant B. The extended notice period helps with new tenant search, avoiding void period addresses bank covenant concerns, and the lower settlement still beats expected outcome of extended vacancy plus re-letting costs. Tenant B's offer to assist with new tenant matters more than the settlement amount.
Why this example matters:
The more generous settlement offer failed while the lower offer succeeded - not because landlords were being unreasonable, but because the complete circumstances created different dynamics. Understanding what actually determines outcomes requires reading your specific situation, not applying a formula.
This work involves understanding what matters to landlords in your specific situation, recognizing when your circumstances create opportunity for negotiated exit (or don't), and positioning an approach that addresses their actual concerns while protecting your interests.
I work with business owners and tenants to assess whether negotiated exit makes commercial sense given your lease terms, market conditions, and landlord dynamics. Sometimes that means recognising exit negotiation isn't realistic and exploring assignment or other alternatives. Sometimes it means structuring an approach that addresses what landlords actually care about rather than just offering settlement.
The value is knowing what's theoretically possible but also reading your situation, understanding what strengthens or weakens your position, and handling the actual negotiation in ways that might achieve the outcome you need. Having worked in property development before law, I understand what property owners are actually calculating when these requests come in.
Get advice before approaching your landlord if:
Professional guidance is particularly valuable when significant obligations are at stake and you need to read whether negotiation makes sense or you're better off exploring alternatives. Most successful outcomes depend on positioning and timing as much as the terms offered.
You can, but outcomes often depend on understanding what the landlord is actually calculating (not just remaining rent versus vacancy), recognising what your lease terms say about your position, and structuring an approach that addresses their concerns while protecting your interests. Most tenants underestimate the factors landlords consider - market timing, financing implications, property plans, re-letting confidence. The gap between "I need out" and reaching agreement requires more than offering a settlement amount. Professional guidance helps read whether negotiated exit makes sense in your situation and how to position a request that might work.
Landlord refusal to negotiate doesn't necessarily mean they're being unreasonable - it often means your request doesn't align with their position and interests. If negotiated exit isn't realistic, understanding your alternatives matters. Depending on what your lease says about assignment and subletting, finding a replacement tenant might be possible where negotiated release isn't. Sometimes seeing out the lease term while subletting (if permitted) makes more sense than continuing to push for exit the landlord won't agree to. Occasionally landlord circumstances change - sale plans, property redevelopment, market conditions shifting - and requests that didn't work initially become negotiable later. But treating "no" as "keep asking" without understanding why they've refused usually doesn't achieve results.
Retail leases in NSW (governed by Retail Leases Act 1994) include protections that pure commercial leases don't - particularly around landlord ability to refuse assignment and what they can require from you. Understanding whether your lease qualifies as retail affects your rights. Retail classification can depend on how you use the premises and specific characteristics of the premises. A health clinic in retail premises might be commercial lease while a café is retail, with different legal frameworks applying. Whether your landlord can refuse your assignment application "at their discretion" versus must not "unreasonably withhold consent" matters significantly. For tenants in premises that might qualify as retail, understanding which framework applies and what that means for your exit options requires assessment of your specific situation.
This creates significant problems that typically cost more than negotiating properly. You remain liable for remaining rent through the lease term - landlords can pursue you for unpaid rent plus their losses from re-letting (agent fees, void period, any rent difference if they re-let at lower rate). Additionally, you've breached the lease, which eliminates any goodwill that might have existed for negotiated arrangement. Landlords who might have considered reasonable exit terms are less likely to negotiate once you've stopped paying. Your personal assets may be exposed if you've provided personal guarantee (common in SME leases), and the landlord may be entitled to use your bond and still pursue you for remaining amounts. The financial and reputational consequences of just walking away typically exceed the cost of professional guidance on proper exit. Last but not least, any future landlord will request references from past landlords and other trade creditors.
If your business operates through a company that's the lease tenant, closing the company doesn't eliminate lease obligations - particularly if you've provided director's guarantee, which most commercial leases require. Directors who've guaranteed company lease obligations remain personally liable even if the company closes. Liquidating the company just means the landlord pursues directors under their personal guarantees rather than pursuing the company. You end up personally liable for the same obligations, but without the negotiating leverage you might have had while the business was operating. This is why professional advice about exit options before simply shutting down the business typically serves you better than hoping company closure eliminates the problem.
Assignment or subleasing are alternatives to termination with different benefits and risks. Assignment can completely remove ongoing liability if properly structured. Subleasing maintains your responsibility. Whether these options provide the clean exit you need depends on your lease terms and circumstances.
