Every lease foresees the modalities of the lease termination for both parties. A unilateral termination right or termination for both parties may be foreseen. There is usually a notice period (typically 6 or 12 months) prior to the end of the term for which the lease has been signed (e.g. 3, 5 or 10 years), where the parties can share their intention with the regard to renewal or termination of the lease.
The tenant can also terminate the lease if:
The landlord does not transfer the leased premises in the agreed time,
The leased premises transferred by the landlord have defects that exclude or significantly impair its suitability for the predetermined use.
The landlord is aware of a defect and does not remedy it within an adequate period of time and this defect prevents or significantly impairs the agreed use of the premises for the tenant,
The tenant provides the landlord with a suitable new tenant and the rented premises remain subject to the same terms and conditions.
The landlord and tenant can also terminate the lease for valid reasons that make performing the lease impossible.
Can you terminate your commercial lease before it expires?
If you need to terminate your lease early, several options are available to you: subletting, transfer of the lease (assignment), or early exit / early restitution of your lease.
What is the most beneficial scenario for you?
You need to leave the premises you no longer use and you do not want to pay the rent for the premises you no longer need. Or, you have to move and don't want to be faced with the obligation to pay double rent or The best option for you will depend on your priorities.
• Do you want to assign your current lease as quickly as possible?
• Do you want to save money?
• Do you want to minimize your risks?
All of these goals can sometimes be achieved simultaneously, but it is essential to clearly identify your options.
The tenant's lease sometimes offers the possibility of terminating the lease by means of a clause authorizing “early exit”, i.e. before the end of the lease.
Such contract clauses, negotiated and appearing in the duly signed lease, define the possibilities of early exit for the tenant.
Thus, for example, a ten-year lease may provide for early exits from the lease after years 5 and 7. These options are not automatic, however, and the tenant, when negotiating his commercial lease, must request to the landlord that they form an integral part of the lease.
Early exits can, but do not necessarily have to be subject to penalties.
In the event that the terms of the lease that you had negotiated do not offer you the possibility of an early exit, you can nevertheless make a request to the landlord. The landlord sometimes grants such an early exit upon payment of a penalty.
The law provides that if the lease does not contain a clause allowing early exit, the tenant can vacate his premises before the end of the lease and restitute the premises, however only in the case he presents a party ready to take over his lease under the same conditions. This can be more or less easy and depend on the period when the lease was concluded. Namely, if the market rents were advantageous in comparison to the current market.
The early restitution of the premises constitutes a method of premature termination of the contract without termination of the lease.
In this context, the tenant is only released from his obligations:
If he expresses his intention to return the premises early
If he presents to the lessor a candidate acceptable in all respects by the lessor
In this case, the candidate presented must be ready to take over the lease under the conditions in force but, unlike the situation of a lease transfer, the outgoing tenant has no particular interest in his successor being accepted by the lessor, who remains free to accept or not the proposed candidate.
It may be in the tenant's interest to restitute the premises early rather than transferring the lease, as he does not need to obtain the written consent of the lessor.
If the candidate is accepted by the landlord, the new tenant takes over the lease, that is to say he replaces the outgoing tenant in the contractual relationship and the outgoing tenant is released from his obligations as soon as the candidate enters.
If the landlord intends to impose new contractual conditions on the candidate (rent increase for example), he must enter with him into a new lease.
Sub-lease as an alternative
A sublease is a separate rental agreement between the primary tenant and a new tenant (sub-tenant). The sub-tenant pays the rent to the tenant (you) and you continue to pay the rent to your landlord, as before.
The tenant has the right to sublet all or part of his premises, but he will remain responsible for all rights and obligations resulting from the lease during the duration of the sublease.
Tenant may sub-let all or part of the property with the landlord’s consent." (Art.262 of the Swiss Code of Obligations). Subletting cannot be prohibited by the landlord, but the latter has to give his consent to the sublet.
The landlord may refuse his consent only if:
The tenant refuses to inform him of the terms of the sub-lease
The terms and conditions of the sub-lease are unfair in comparison with those of the principal lease
The sub-letting presents major inconveniences for the landlord
In practice it may encompass the following situations:
The tenant makes an unreasonable profit from the sublet,
The sub-tenant is a competitor of the landlord or other tenants of the building,
The sub-tenant exercises an unlawful or unethical activity,
The sublease is a hidden lease transfer – the tenant leaves the premises and has no intention of coming back, etc.
The sub-tenant does not present the necessary financial guarantees or intends to carry out an activity that would harm the lessor,
The activity planned by the sub-tenant is particularly noisy, requires the structural transformation of the premises, requires a license that the sub-tenant does not have, etc.
The tenant must communicate to the landlord all sublet conditions, i.e.:
The contact details of the sub-lessee
The rents, charges and accessorial costs agreed in the sublease agreement
The purpose of the sublease
The premises’ use
The sublease term
Ideally, the tenant would submit a draft sublease agreement to the landlord.
Attention: even if the landlord gives his consent, he does not recognize the sub-tenant, because no contract binds the two parties. In other words, the sub-tenant is tolerated by the landlord and, vis-à-vis the latter, it is the tenant who assumes all the risks associated with the lease (damages and payment of the rent in particular).
If he sub-leases the premises without the consent of the landlord, he risks the termination of the lease.
The tenant stays liable to the landlord for any damage caused by the sub-tenant, including the payment of compensation for unlawful occupation if the sub-tenant does not vacate the premises after the end of the main lease. No extension of the sublease is possible beyond the expiration of the head lease.
The tenant may also pre-agree in the lease the sublease to the companies-sisters or companies from the same group without the landlord’s consent.
The sublease can be very interesting solution for the tenant, especially when he would like to recuperate some of cost related to the investments he made in the premises.
Such subletting in lieu of transfer of lease also delays the time of restitution of the premises, which can be useful and give tenant the time to amortize the works conducted in the premsies.
Lease transfer / Lease assignment as an alternative
A lease transfer is also called a lease takeover or lease assignment. It is when you (transferor) find a new tenant (beficiary of the transfer) that will sign your lease agreement “as is”. In other words, the new tenant will take over your current lease. The new tenant will enter into a direct relationship with the landlord (and not via the tenant, as in the sublet). Therefore, the rent for the remaining years/months of your lease will be paid directly by the tenant to the landlord.
Lease transfer is a tripartite contract whereby a new tenant (transferee/the beneficiary of the transfer) takes over the current lease agreement with all the rights and obligations of an outgoing tenant (the transferor), and with the agreement of the landlord.
The landlord's obligation to transfer the contract to the new tenant (beneficiary of the transfer) is effective only if the landlord agreed to it in writing.
The current tenant has to present the landlord with a transfer request and the landlord has to agree to such transfer in writing. The request should be made in advance, as the response time is from 30 to 60 days. The best is for the tenant to submit the complete file to the landlord about the person interested in taking over the lease.
The landlord has the right to require the transferor to provide him with all the information allowing you to make an informed decision on the transfer, such as: data relating to the beneficiary's solvency (extract from the prosecution and bankruptcy office, balance sheets and profit & loss accounts, etc.), information concerning his professional capacities (for example the authorization to operate the commercial activity carried out in the premises), etc.
Landlord can only refuse his consent for valid reasons such as the insolvency of the transferee or if the transferor refuses to provide the trade discount information. If the landlord gives his written consent, the beneficiary of the transfer takes the place of the former tenant who will, however, remain jointly and severally liable for the obligations of the lease until the end of the contract but for a maximum period of two years.
In case the lease transfer is carried out despite its justified refusal, the lessor may terminate the lease early, after having unsuccessfully given notice to the transferring lessee to recover the premises. The tenant also exposes himself to paying damages.
Lease transfer may be a good solution for a company looking to take on the shorter lease - in case the main tenant has 2-3 years of lease left, and the beneficiary of the transfer replaces the tenant with the regard to all lease obligations, but also all benefits. Also, in case main tenant has the well negotiated lease with the extraordinary conditions – it may be good solution to simply step in and take over the existing lease.
Which is the best option for you?
Which option to choose depends on what matters most to you: saving time, saving money or reducing your risk.
If you are making a decision based on time:
The option that will allow you to exit the lease the fastest is the early exit of the lease. If the landlord agrees to give you this option, it can be done immediately. The second option in terms of saving time is a sublease. It is generally approved faster and easier than a lease assignment / lease transfer.
The slowest option is the lease transfer option. To this end, you must provide a complete file containing all the necessary information concerning your proposed assignee / transferee and work in close collaboration with him and your landlord in view of the conclusion of the transaction.
If you are making a decision based on risk:
The least risky option is an early restitution, as the rental agreement will be canceled and your liability will cease.
In assignment, you transfer your rights and obligations to the new tenant, but you will remain jointly and severally liable towards the landlord throughout the duration of the lease, this being however limited to a maximum of 2 years.
In case of the sublease, you are responsible for the actions of your sub-tenant, since you signed the initial lease and have a direct contractual relationship with the landlord.
If you are making a decision based on financial aspect / your budget:
The cheapest option is usually a lease transfer, as it covers your entire initial lease and all of the business premises.
The new tenant simply takes your place.
The cost of subletting can be similar if you sublet the entire office, but this can incur costs the moment the space needs to be subdivided for a partial sublet of the space.
The most expensive option is early exit, as it is usually granted on payment of a penalty.
When you find the tenant that meets all the selection criteria, work with them and your landlord. You will then see which of these three options will be nest for you.