commercial lease default letter template

Both parties should carefully review the applicable provisions in the underlying lease that describe the tenant’s obligations before surrendering the space to the landlord. The lease termination agreement should also cover the timing and manner of the tenant’s departure. If a tenant is paying a lease termination fee, the parties should explicitly state in the lease termination agreement when it must pay such a fee (i.e., when the early termination fee is executed, on the date the tenant vacates, or at some later date), and whether, upon receipt of the fee, the landlord otherwise waives all other payments that the tenant may owe under the lease.

Unless the lease provides for an agreed-upon termination fee, the determination of the proper early termination fee expected from a tenant will typically reflect a number of considerations, including the remaining term of the lease, whether the tenant still owes any back rent, the amount and status of any remaining security deposit or prepaid rent, the unamortized costs the landlord originally incurred for any tenant build-out, broker commissions, rent concessions, and costs the landlord anticipates incurring as a result of getting the space back early. While it is usually the tenant that pays the early termination fee, sometimes circumstances arise in which it is the landlord that wants to “buy its way out” of the lease early. The most common business issue to resolve is whether either party must make a special payment to the other party in exchange for the early termination. Parties that give proper attention to these key issues will help protect themselves and accomplish the breakup efficiently and with as little pain as possible.

Regardless why a landlord and tenant decide to terminate a lease before its natural end date, early termination raises many common business and legal issues that each party should consider, negotiate, and then memorialize in a written agreement. Like in any long-term relationship, by the time a landlord and tenant have decided to terminate a commercial lease, both parties are usually in a rush to go their separate ways. Originally published as an Op-Ed by the Oregon Daily Journal of Commerce on March 4, 2022.

Commercial lease default letter template