Key Considerations for Terminating Commercial Leases: Overview

by Practical Law Real Estate

A Practice Note addressing key considerations for voluntarily terminating a commercial real property lease before the stated expiration date. This Note explores the essential issues landlords and tenants must evaluate when considering early lease termination, such as third-party approvals and existing tenant liens. It highlights the impact of state and local laws on lease termination, including potential sales or transfer taxes and the treatment of termination payments under federal and state tax laws. This Note also examines how state law can govern the landlord's obligation to return security deposits and tenant termination rights in the event of a landlord's breach. Additionally, it provides guidance on documenting early lease terminations and key terms to include in a termination agreement, such as mutual releases, indemnities, and termination payments. This Note discusses alternative strategies such as lease assignments, subleases, and lease amendments to address unforeseen circumstances affecting commercial leases.