Early termination option
An early termination option is a lease right that lets one party end the lease before its scheduled end date. It usually comes with conditions, such as written notice by a set date and a payment. The lease spells out the terms.
This entry is part of the Fairview Audit glossary. It explains the term so you can find and read the clause in your own lease.
Why it matters in a cost review
An exit right is worth something only if you can use it. If the notice date passes, the right can lapse. If the fee is worked out wrongly, you can overpay to leave. A cost review checks both the clause and the figures behind it.
The fee is often tied to the landlord's costs that have not yet been recovered, along with items such as unpaid rent and deposits. Those parts can be added up in different ways, so the calculation deserves a second look. Partner firms in our network cover this within lease audit and compliance, including early termination and buy-out work.
A plain-words illustration
A business leases space for a long term but expects to consolidate offices in a few years. The lease gives the tenant the right to end the lease after a set point by giving notice ahead and paying a fee.
When the time comes, the landlord sends a figure for the fee. The business now needs to see how the amount was built. Did it include unpaid costs that were already recovered? Did it count the correct remaining term? Did it credit the deposit? Without the lease and the landlord's workings, it cannot tell.
How it shows up in a review
A partner firm usually starts with the lease, its amendments and any letters about the exit. It will look for:
- the notice period and the exact way notice must be given
- the earliest and latest dates when the option can be used
- how the fee is defined and what it includes
- how deposits, prepaid rent and credits are treated
- what condition the space must be in when you leave
- what happens to rent and shared costs between notice and exit
An option can also be negotiated outside the lease. A buy-out is a separate agreement in which the parties settle terms to end the lease. Common topics in a termination agreement include the fee, timing, condition of the space, continued use for a short time and releases between the parties. Any such agreement should be reviewed by counsel. [VERIFY: have counsel confirm how fees, releases and guarantees should be handled in a termination agreement]
Whether and how a given firm supports these negotiations is for the firm to state. [CONFIRM: a partner firm supplies and approves how it supports early termination and buy-out work]
Common mistakes
- Missing the notice date. The right can end if you give notice late or in the wrong form.
- Accepting the fee figure at face value. Ask for the workings.
- Forgetting guarantees. A personal or parent guarantee may need to end at the same time.
- Overlooking other charges. Rent, shared costs and repairs can continue until the exit date.
- Leaving without a written release. Know what claims remain after you leave.
- Assuming every lease has an option. Many do not. Read your lease first.
Warning: Do not rely on this entry to decide whether to end a lease. Speak with counsel before you act on any exit right.
Related terms and pages
Fairview Audit connects you with finance professionals and partner firms. The partner firm performs any review, and the engagement and fees are between you and the firm.
Tell us what you need reviewed. We match you by hand with an independent partner firm. You keep your existing vendors.Find out what you are overpaying.