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deed of surrender in commercial lease termination agreement by mutual consent

What is a Deed of Surrender of Lease?  When both the landlord and the tenant reach a mutual agreement to end or terminate an existing lease before the expiry date this is known as either a termination of lease by agreement or a surrender of Lease.

Read about lease transfers and surrenders, here on the State Revenue Office website.

There can be many reasons why a tenant and landlord agree to terminate a commercial lease.

The most common ones are:

  • The tenant needs to vacate the premises as it can no longer afford the rent. Often in this case it is better for the tenant to see if they can locate a potential new tenant to assign the lease to.
  • The tenant needs larger premises and the landlord and tenant agree a new lease of a new area.
  • The landlord needs the premises vacated as it intends to sell or redevelop a site.

When it has been agreed between the landlord and tenant to terminate the original lease before the expiry date of the lease term. That agreement needs to be formally recorded in a document.  That document is commonly known as a Deed of Surrender of lease.  The purpose of the Deed of Surrender of lease is to formally terminate the lease and record any other arrangements the landlord and tenant may have agreed to. When an early termination of a lease has been agreed it is important to get legal advice.

What are the important things to consider when negotiating a Deed of Surrender of an existing lease?

When negotiating a surrender of lease before the legal documents can be prepared there are certain conditions on which agreement needs to be reached. The main issues to address are:

  • Date of surrender of lease
    What will be the date on which the tenant will vacate the property?
  • Rent and outgoings
    Will the tenant be required to pay of rent and outgoings up to the date of surrender? Generally, the answer is yes but sometimes where the tenant is vacating because of a dispute with the landlord it may have been agreed that outstanding rent and outgoings are not payable or are payable at the reduced rate.
  • Make Good
    The lease will generally have a contractual term that the tenant “make good” the premises before it vacates.  Each lease varies as to what this involves.  It can be as simple an obligation to clean and repair any damage to the premises or it can be as onerous as the tenant must completely reinstating the premises to its original condition. The make good clause needs to be carefully reviewed to understand the tenant obligations.
  • Guarantees Bonds, Security deposits and Bank Guarantees
    Where a director of the tenant has given a personal guarantee, or the tenant has given a security deposit such as a bond or bank guarantee then the guarantee needs to be released and the bond or bank guarantee needs to be returned to the tenant.  This should be effective from the date of surrender.
  • Mutual release
    A deed of surrender should include a clause which releases both the landlord and tenant from any further claims against each other in relation to their lease obligations.
  • Payment for early termination of the lease
    Depending on the facts it may be that either the landlord or tenant agrees to make a payment for the early surrender. This is often a lump sum payment and known as a surrender fee.
  • Who is paying the legal fees?
    An agreement needs to be reached as to who is paying for the legal costs for the drafting of the deed of surrender. The deed of surrender is normally prepared by the landlord.

Finally, once all these points have been discussed and the terms agreed the deed of surrender needs to be prepared and reviewed by both the landlord and the tenant. The deed of surrender is then signed by all parties.  Before the lease is surrendered it will be a condition all matters such as make good has been done and the return of the security deposit or bank guarantee has been arranged.