In unprecedented scenarios, like COVID-19 or sudden block in cash flows, businesses may wish to be discharged from the tenancy agreement to prevent liabilities. Indeed, there are lawful ways to end such tenancy:
1. Break clause / termination clause
A break clause or termination clause allows both the landlord and tenant to terminate the tenancy prior to the end date of the tenancy, without paying damages. Depending on the negotiation and the drafting of the contract, the party can end the agreement earlier by serving notice some months before. Here is an example of the clause:
“The Tenant and the Landlord of this Agreement shall have the right to terminate this Agreement after the first three months of the Term by giving to the other party of this Agreement two month’s written notice of its intention to do so.”
2. Landlord breaches the contract
There are different ways that a landlord can breach a contract. If the landlord violates any terms of the contract, or leases the property to another party without complying with the break clause, then the landlord will breach the contract. In cases of an anticipatory breach (e.g. the landlord refuses to let the property before the lease even begins), the landlord will also commit a breach. Anticipatory breach can also be used when the landlord alleges the tenant breached the contract, and the tenant did not. In these scenarios, the tenant may be entitled to terminate or affirm (i.e. to continue with the tenancy) the contract.
However, the tenant should note that if they remain inactive by not complaining for too long, they may have affirmed the tenancy. If the landlord cures the anticipatory breach before the lease begins, the tenant may lose the chance to terminate. The tenant will not be able to terminate if they also breach the contract.
Key takeaways:
- A break clause or termination clause allow the tenant to be lawfully discharged from the remaining term of the contract.
- Landlord’s breach can also release the tenant from the contract. But it is subjected to various confines (e.g. lapse of time).