Together We Win

What’s an early termination clause in a commercial lease?

On Behalf of | Jun 5, 2024 | Real Estate Law |

An early termination clause in a commercial lease allows either a landlord or a tenant the right to end their lease before the agreed-upon term under predefined conditions. 

These clauses are designed to offer flexibility in situations where continuing the lease is no longer feasible or beneficial for one of the parties involved.

Why are early termination clauses important?

Tenants and landlords can both benefit from a well-written early termination clause. For tenants, the benefits are flexibility and risk management. 

If your business suddenly shrinks or grows, the space you’re in may no longer meet your needs, and an early termination clause can provide you a way out without worrying about a huge financial burden from the remaining lease term. Similarly, in uncertain economic times, you may simply need that clause to mitigate the potential financial risk of a long-term commitment.

For landlords, an early termination clause can help with tenant turnover. If a tenant is struggling financially, it can lower the foot traffic in your complex and make the place seem less appealing to other potential tenants. An early termination clause can allow you to find a more stable tenant that will help attract customers and keep your rental values higher. That ultimately allows for better property management and use.

Both sides can come to the negotiation table and hammer out an agreement that clarifies when each party can invoke the early termination clause, as well as what fees or costs must be paid. It’s also important to discuss notice periods, so that the other party has enough time to either plan their move or start seeking new tenants.

Navigating commercial leases can be complex, especially when it comes to understanding early termination clauses. Since mistakes can be costly, it’s usually better to have specific legal guidance that’s tailored to your interests.