Shared commercial leases offer flexibility, cost-sharing and the ability for businesses to access premium office space that might otherwise be out of reach. But when one tenant needs to exit early, things can quickly become complicated.
Liability, approvals, make good responsibilities and internal relationships all come into play. Without the right guidance, even a simple departure can become a major commercial and legal risk. It’s absolutely essential to ensure the exit runs as smoothly as possible for both parties, and expert assistance is always advisable.
At Makegoods.com.au, we regularly support businesses navigating shared tenancy exits. In this article, we’ll provide a clear, practical breakdown of what’s involved in the process, the strategies available to ensure a smooth process, and the key coordination points every tenant should understand before taking action.
Start with the commercial lease agreement
The lease is always the starting point. It sets out the legal and financial responsibilities of the co-tenants and the landlord, including how rent is shared, who is responsible for outgoings, and what happens if one party breaches the agreement.
Most shared commercial leases include joint and several liability, which means:
Jointly: All tenants are responsible together for the full lease obligations — rent, outgoings, damages and make good.
Severally: The landlord can pursue any one tenant for the entire amount owing, even if the issue was caused by another co-tenant.
This is why a tenant exiting without proper documentation remains exposed. Unless they are formally released via a lease surrender, assignment or substitution, they can still be held liable if the remaining tenant defaults.
Nearly all commercial leases also require the landlord’s written consent before adding, removing or replacing tenants. No matter how well the exiting and remaining tenants get along, nothing is official until the landlord approves it.
Common exit strategies for shared tenancies
When one company needs to leave, the tenants typically work together to adopt one of the following exit models. Each requires coordination between the departing tenant, the remaining tenants and the landlord.
Lease assignment
Under a lease assignment, the exiting tenant transfers all rights and obligations to a new incoming tenant. Once approved and documented, the departing tenant is usually released from future liability.
Key coordination points include:
- All co-tenants agreeing on the replacement tenant
- Landlord approval of the assignee
- A formal deed of assignment that correctly releases the departing party.
This is one of the cleanest exit pathways if a suitable replacement can be found.
Subletting the space
A sublease allows the departing tenant (or remaining co-tenants) to lease part or all of the space to a new party. However, the original tenants remain responsible to the landlord.
Considerations include:
- All tenants must approve the sub-tenant
- The head-tenant (usually the departing party) remains legally liable
- Rent sharing, shared-use areas and building access must be carefully managed.
Subleases can be flexible but often introduce new complexity in shared-space management.
Lease surrender
A lease surrender involves all tenants and the landlord agreeing to terminate the lease early. The landlord will typically require a break fee to compensate for vacancy risks, incentives previously provided, or leasing commissions.
Coordination focuses on:
- Negotiating the surrender fee
- Determining whether the remaining tenants will enter a new lease
- Ensuring the departing tenant is fully released from future obligations.
This option can be effective for tenants wanting a clean break but requires all parties to cooperate.
Tenant substitution
Tenant substitution places a new company into the lease in place of the departing one. This is similar to an assignment but is often structured as both an assignment and an amendment to the original lease.
It requires:
- Strong financials from the incoming tenant
- Detailed documentation to transfer obligations correctly
- Clear release provisions for the exiting tenant.
This approach can be fast and efficient when properly documented.
Internal coordination between tenants
The most important part of a shared tenancy exit happens not with the landlord, but between the tenants themselves. Ideally, co-tenants already have a Co-Tenancy Agreement in place, setting out:
- How rent and outgoings are divided
- How shared areas are managed
- Notice requirements for a co-tenant wishing to leave
- Processes for finding and vetting replacement tenants.
If no such agreement exists, negotiating an exit becomes more complex.
Make-good and dilapidation responsibilities
Make good obligations are a major friction point in shared tenancy exits. The departing tenant must agree with the remaining tenants on how:
- The exiting tenant’s portion of end-of-lease works will be handled
- Cash settlements will be calculated
- Shared areas such as kitchens, meeting rooms and cabling infrastructure will be restored.
In many cases, the departing tenant chooses to settle their portion upfront, allowing the remaining tenants to manage the overall make good closer to the lease expiry.
Handling security deposits and bank guarantees
The departing tenant’s share of the bond or bank guarantee must be dealt with through:
- A transfer to the incoming tenant
- A refund to the departing tenant
- New financial security provided to the landlord.
These transactions require updated documentation and usually the landlord’s written consent.
Why expert support matters
Shared tenancy exits involve three sets of relationships. Those between the departing tenant, the remaining tenants and the landlord. One oversight can leave the exiting tenant legally and financially exposed long after they’ve left the premises. This eventuality needs to be avoided at all costs.
At Makegoods.com.au, we help businesses:
- Understand their exposure
- Navigate assignment, surrender and substitution pathways
- Negotiate between tenants
- Calculate and manage make-good obligations
- Coordinate works and reinstatement
- Ensure all documentation provides a true release from liability.