Ending a lease early? You need a Surrender of Lease
Summary
A surrender of lease is a document that both you and the landlord must sign when you have agreed that a lease will end prior to the end date.
When considering a surrender of lease, it is necessary that you and your landlord understand the specific clauses of the deed. You should ensure that the conditions within the clauses are:
reasonable
clear; and
don’t place unrealistic burden on you.
It is also important to note what costs you will be responsible for payment and any lease registration fees or stamp duty.
Background
What happens when both you and your landlord want to end the lease? Even if you are in agreement that the lease should end, there needs to be some formal paperwork to tie up any legal loose ends. This paperwork is generally a deed of surrender of lease (surrender of lease). This deed has the effect of ending the relationship between you, as the tenant, and the landlord. This article explains different aspects of the deed, including:
when you should use it;
the standard clauses it should have; and
any issues that you should consider.
What is a Surrender of Lease?
A surrender of lease is a document that both you and the landlord must sign when you have agreed that a lease will end. The surrender of lease sets out the key agreements between the landlord and tenant. It ensures that neither party has any further legal responsibilities surrounding the lease. It can be used in many cases, such as where:
you want to exit the lease early;
the landlord wants to end the lease early to redevelop the premises, and you agree to leave the premises; or
you want to restructure their business and transfer the lease to their new entity, such as transferring from your sole trader to a company.
What are the key clauses of a Surrender of Lease?
While the terms of each surrender of lease will be unique, there are some common things you should look out for:
Preconditions: look out for any preconditions which must be satisfied first before the surrender of lease comes into effect.
Make Good: here may be a requirement you ‘make good’ the premises by the date of surrender. This means that you will have to return the premises to the condition that it was provided to you. Alternatively, if the landlord is planning to redevelop the property, there may be a release in your favour that confirms that you do not need to make good. This is because the landlord is going to redevelop or demolish the property anyway.
Security Deposit: Look out for a provision detailing the return of any security deposit. This might include that the landlord returns the bank guarantee that you lodged at the start of the lease as security. If the landlord has made any deductions to your guarantee, ensure that they were justified.
Release of legal responsibilities: Mutual indemnity and release clauses ensure that you and the landlord release each other from any legal claims arising out of the lease. This ensures that both the landlord and yourself are no longer legally responsible for the lease after the surrender date. Therefore, you are legally protected from any legal claims that the landlord might bring after the surrender of the lease.
Costs: There may be a provision relating to the payment of costs. This will likely be an agreement between the landlord and yourself on what costs need payment. Further, the provision might note that each party must bear their own costs. In some circumstances, it specifies that the party requesting the surrender must pay the other party’s legal costs.
Stamp duty: If the lease is registered, your surrender of lease form will commonly be liable for stamp duty. Stamp duty is a tax that’s imposed on the purchase of assets and transactions of property. By paying stamp duty, the relevant state land titles office will remove your registered interest on the property from the land’s title. If you have paid a surrender fee to end a lease early, it is important to obtain your accountant’s advice on tax and other stamp duty issues. This will impact upon the way the payments are dealt with and any stamp duty that you must pay on the deed of surrender.
If you have any questions about your rights and obligations under a surrender of lease, or if you need a surrender of lease, please reach out to a member of our team.
Chris Burrell
Partner
chris@fuselaw.com.au
+61 417 832 153
Kate Cantrell
Partner
kate@fuselaw.com.au
+61 401 370 179