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A lease termination clause vs. an early termination clause

On Behalf of | Nov 21, 2022 | Property Law

Commercial landlords and tenants have the option to agree to various clauses when they sign the initial lease. This contract can be designed to offer more productions for landlords or for tenants, and the two sides can negotiate the terms that they would like to include.

Two of the clauses that may be used are known as a lease termination clause and an early termination clause. In some ways, they sound the same, and they do both deal with ending the lease prior to the date stated in the initial terms. But they do this in very different ways, so it’s important to know how they work:

Mutual consent

With a lease termination clause, the landlord has the option to come to the tenant and request to cancel the lease early. At the same time, the tenant could come to the landlord and ask to be let out of the lease early. Either side can terminate that lease agreement at any time.

The key to this is the mutual consent between both parties. This clause shows that they agreed to set the lease up this way from the very beginning and they both have the power to take this action, rather than reserving it specifically for the property owner.

Early termination

With an early termination clause, the tenant is essentially still bound to the terms of the lease and has to stay in the property until it expires. The lease could be for 3 to 5 years, for example. They cannot terminate it before that.

However, the landlord is able to set up regulations that have to be followed. If these are broken, then the landlord can terminate the lease early. This only works in one direction, whereas the lease termination clause works both directions.

When contracts become complex or lead to legal disputes, all parties may need to know what options they have.