What Is a Lease Termination Agreement?
A Lease Termination Agreement or Rental Termination Agreement is executed by the Landlord and a Tenant when they put an end to a pre-signed lease term. The agreement can be signed to effectuate an early termination or end a lease that has already reached maturity. This agreement marks a definitive end of the parties’ commitments under the contract.
When Do You Need a Lease Termination Agreement?
The agreement is required when either the tenant or the landlord wants to opt-out of a Lease prematurely. The agreement acts as a safeguard against any future disputes that may arise out of the Lease termination. Generally, this agreement is made because the parties want to enter into some other lease. If that new condition is not met, then this agreement is automatically terminated.
Generally, a commercial lease or residential lease can be terminated by serving a legal notice to the other party in advance. Therefore, take the form of a simple notice or can be drafted more elaborately, depending upon the nature and complexity of the original leasing contract and the anticipated disputes in termination.
What Should Be Included in a Lease Termination Agreement?
An early termination of lease agreement should be drafted clearly and concisely. While the contents may vary, a standard termination of lease agreement template should typically include the following:
- Clear introduction and recitals providing a gist of the original Lease and reference to the clause(s) that allows for termination
- Establishment of the date when the Lease will end
- Establishment of the date when the tenant should surrender the property
- A brief on the party’s Lease termination responsibilities such as cleaning of the space, removal of signage, etc.
- Lease Termination Fee and its payment(if any) in addition to the payment of any outstanding charges such as maintenance fees, taxes or utility fees
- Conditions to the returns of the tenant’s security deposit
- A mutual release of liability
- Right of the landlord to assess the property for damages before vacation and subsequent deductions from the security deposit
- Acknowledgement of
- Return of any possessions by each party to the other
- Identification of payment of lease termination fee
- Identification of payment of costs associated with the lease termination
- Condition for which the agreement is being drafted
- fulfilment of tenant’s obligations under this agreement
- Events of termination of the agreement
- Permissions for modifications to the agreement
- Assignment and successors, and counterparts to the agreement
- Waiver of any future liability
In addition to the above and depending upon the relationship between the parties at the time of termination, a termination of lease agreement sample letter can also include confidentiality and non-disparagement provisions for added protection.
How to Draft a Lease Termination Agreement?
It is important to draft the termination of a Lease clearly. It should precisely indicate the parties’ desire to end the lease mutually or, alternatively, state the name of the party that wishes to initiate termination.
Some points that need to be kept in mind while drafting an agreement are
- Why the agreement is being drafted — the conditions for which this agreement is being drafted
- Whether even after this agreement a new agreement would take the place of the old one
- Whether the possessions and the utilities should be returned to each party or whether they would be carried on for the next lease
- Who would bear the responsibility of payment of the costs related to this agreement
- Whether this agreement is in contravention to the events of default mentioned in the original lease agreement
- What happens if the conditions upon which this agreement is drafted are not met
Since the end goal of the agreement is to provide a definitive resolution to all open issues, it should clearly state the roles and responsibilities of both the parties before, during, and after the lease is terminated.
Benefits of a Lease Termination Agreement
- A Lease agreement acts as a formal release ( for the Landlord and Tenant) from any and all existing and future claims, whether known or unknown, pending or threatened, actual or contingent, that arise out of or are related to the original Lease agreement.
- It serves as legal protection for the parties from any unwarranted disputes or claims (regarding the lease) that may arise in the future.
- It also helps the landlord/tenant recover any monies due on termination and even sue for damages if required.
- This agreement provides both parties peace of mind and helps them reach an amicable conclusion.
While there are no perceived cons to an agreement, any lop-sided clauses in the agreement in favour of either party may compromise the rights of the other party and may jeopardize future terms between the two. However, there is a chance that the conditions of the contract may not be honored and this agreement would be null and void giving full effect to the original lease agreement
Key Terms of a Lease Termination Agreement
While the terms of the agreement may vary depending upon the type of Lease and the relationship between the landlord and tenant, the key terms of the termination should cover the responsibilities and rights of both the parties upon termination
- The date of surrender of the lease
- The conditions for which the lease is being terminated
- What happens to the possessions and the security deposit with the landlord
- What the effect of this agreement on the original lease agreement is
- Various acknowledgements as per the lease termination agreement
- Whether all the obligations of the tenants are fulfilled as per the original agreement or not
What Happens in Case of a Violation?
The lease agreement is prepared with the objective of meeting some predefined conditions. If those conditions are not met, then the agreement would be terminated automatically and the original lease document would come into force. If the breaching party does not cure the breach under the original lease either, then the parties may approach the court of law for specific performance or restitution as the case may be. In case of monetary loss, the injured party may apply for compensatory damages as well.
Lease termination can be drafted as a simple ‘Termination of Lease Agreement Letter’ or as an elaborate agreement stating the terms in further detail. A well-drafted Lease Termination Agreement helps the Landlord and Tenant release their claims in a smooth manner and avoid any future misunderstandings or disputes.
Sample for Agreement For Termination of Lease