Commercial Lease Termination Letter

A commercial lease termination letter is a written notice that lets either the tenant or landlord communicate their intent to end a commercial lease agreement. This document protects both parties’ rights and facilitates a smooth transition, ensuring the tenant vacates the property and returns it to the landlord.

It records essential details, including a confirmation of the request, the reason for the request, and relevant provisions from the original lease.

Table of Contents

• Commercial Lease Termination Letters - By Type
• Is a Commercial Lease Termination Letter Legally Binding?
• Why End a Commercial Lease
• How to End a Commercial Lease
• Lowering the Costs Of Breaking a Commercial Lease
• Frequently Asked Questions

Commercial Lease Termination Letters – By Type

Is a Commercial Lease Termination Letter Legally Binding?

A commercial lease termination letter can be a legally binding contract if the following conditions are true:

• It adheres to the terms of the original commercial lease.
• Both parties agree to the termination terms.
• The termination letter complies with the provided notice period.
• The letter complies with state and local laws relating to commercial lease termination.
• The letter’s author follows the delivery method stated in the original commercial lease agreement.

Why End a Commercial Lease

Here are some common reasons for ending a commercial lease:

• The lease expires. If the commercial lease expires and one party doesn’t wish to renew, they can end it with this letter.
• The parties are in mutual agreement. When the renewal decision is made, the parties may both agree to end the commercial lease agreement.
• One party seeks early termination. Either the landlord or the tenant can seek early termination, but it’s common for the tenant to do so because their business is experiencing poor financial performance. They can use a commercial lease early termination letter to most effectively request an early end to their existing lease.
• One party breaches the terms. If the landlord fails to maintain the property or the tenant breaches a provision in the commercial lease, the affected party may write a termination letter.
• The landlord buys out the tenant’s lease. If the landlord sells the property while the tenant lives in it, they may agree to buy out the tenant’s lease. This way, the tenant can move out amicably, and the landlord can proceed with the final steps of the property sale.
• Either party files for bankruptcy. Bankruptcy by either party may result in the need for termination of the commercial lease.
• The property becomes unsafe. The landlord may terminate the lease if the property poses safety or health issues that make it uninhabitable.

How to End a Commercial Lease

Step 1 – Review the Original Lease

Review the original lease to understand its termination terms and conditions. For example, you should understand the protocols for declining a lease renewal and providing proper notice.

You should also familiarize yourself with its early termination clause, if applicable. Some commercial leases have these clauses to let either party end the lease early under certain circumstances.

Step 2 – Obtain Supporting Documents

Obtain supporting documents to justify ending the lease early. Tenants may assemble the following documents:

• Financial records that show that the business is suffering while under the lease
• Communication records that show the business tried to address issues with the landlord or property manager
• Evidence of safety hazards or unresolved maintenance problems

Landlords wishing to end a commercial lease on the agreed-upon expiration date may not need supporting documents.

Step 3 – Write the Letter

Write the letter, ensuring to include the following elements:

• The recipient’s full name and address
• The intention to terminate the lease (and clarification if it’s an early termination)
• The reasons for termination (lease violations, mutual agreement, poor business performance, etc.)
• The effective lease termination date
• Whether the landlord will return the tenant’s security deposit
• Possible solutions (negotiating a buyout, locating a replacement commercial tenant, etc.)

Step 4 – Deliver the Letter

Deliver the letter to the recipient using a method that offers proof of their receipt. For example, you may hand deliver it to them and obtain their signed acknowledgment. Alternatively, you may use certified mail.

Step 5 – Prepare for the Next Steps

Communicate with the other party to determine next steps. Coordinate the move-out date and ensure the landlord can regain control of the property at the appropriate date.

The commercial tenant should alert employees and make plans to relocate their equipment and machinery.

Lowering the Costs Of Breaking a Commercial Lease

Here are some ways to lower the costs of breaking a commercial lease:

• Ask about assigning. You may be able to sign the rights of your lease to another party, making it their financial responsibility.
• Learn if you can sublease. Your landlord may let you sublease, which is when you become a sublandlord and lease to a third party.
• Find another tenant. You may work with the landlord to find a replacement tenant to take over the primary lease.
• Follow notice requirements. Adhere to the notice requirements in your lease to prevent additional costs.
• Offer financial incentives. The landlord may be more likely to cooperate if you offer to help pay for the costs of finding a new tenant or paying for rent during a vacancy period.
• Be honest about your financial situation. Communicate with the landlord that your business is experiencing financial hardship. They may be more willing to empathize and work with you to find a solution.
• Keep the property in good condition. Returning the property in good condition (clean and with no major damage) can decrease the costs that a landlord may otherwise deduct from your security deposit.

Frequently Asked Questions