Termination of a fixed-term lease agreement. Guide.

Introduction. How complicated is early termination of a fixed-term lease?

[Short on time? Link to the abridged version of our guide]

This is a very classic situation for lawyers – first, the landlord and tenant agreed on something else. Now, due to various circumstances (often quite significant, but only for one of the parties) – the time has come to withdraw from the agreement. However, the possibility of terminating a lease agreement concluded for a fixed period is usually very severely limited. In the worst-case scenario, the tenant will be obliged to pay rent – until the end of the agreement, and sometimes even higher damages occur. On the other hand, a landlord who wants to terminate such an agreement early may be obliged to cover all damages for the tenant – including, above all, lost profits. However, none of this will happen if a way to legally terminate the lease agreement before its term is found. By mutual agreement or unilaterally. However, the former occurs in practice the more often the latter is possible. In practice, this means that ending a tenancy early needs to be considered on three levels.

• The first level is purely legal: is there a provision of law or a clause in the contract that allows for termination, rescission, withdrawal, assignment, or any other mechanism for ending the tenancy agreement?
• The second level is evidential: can the facts the party wishes to invoke be proven by documents, correspondence, photographs, minutes, witnesses, or the history of contract performance.
• The third level is economic: does even a legally feasible action make sense when considering remaining rent, deposit, court costs, risk of losing, duration of the dispute, lost benefits, and the possibility of reaching a settlement.

Only the intersection of these three planes shows whether the matter is genuinely suitable for termination, or rather for negotiation, agreement, preparing an alternative tenant, or a completely different move.

Finding an effective way to terminate a tenancy early

Tenants or landlords wishing to terminate a fixed-term lease early face a significant hurdle. Among the most common and considerable drawbacks of such a situation are high stress, formalities, compensation, and contractual penalties. However, the worst aspect is the uncertainty that persists until the very end of such a dispute – an uncertainty that we guarantee affects both parties! Both the tenant and the landlord are unsure whether they will be able to end the lease agreement at all, how long they will be able to maintain it, and in what condition the property will remain. Consequently, they are unsure of the final cost of resolving the conflict (for each party). By its very nature, a fixed-term lease agreement means there is no period of unilateral termination other than the remaining time until the contract ends. As a rule, the contract is binding until the end of the period for which it was concluded. Theoretically, the possibility of terminating a fixed-term lease simply does not exist. There is no such thing as a notice period for a lease agreed for a fixed term. However, there are numerous exceptions to these general rules. We describe these exceptions below – in an accessible question-and-answer format. When we are the party wishing to terminate a fixed-term lease against the will of the other party, it is crucial to define the reasons for which this lease must be terminated. Correctly defining these reasons and the possibilities arising from the documents will allow us to consider whether the costs associated with terminating the agreement outweigh the benefits. To put it more simply: it is wise to first consider whether the game is truly worth the candle.

Can a fixed-term lease agreement be terminated? What are the consequences of terminating the contract early? What to do if the contract does not contain a notice period?

It may not be easy to terminate a fixed-term lease if the other party does not show a certain degree of goodwill. Therefore, it would be advisable to at least partially disengage from this goodwill, or to persuade the other party to express this goodwill, first, it is best to examine the provisions of the contract very, very carefully – to verify if and what clauses in the tenancy agreement allow for early termination of the lease. Unfortunately, these are not always clauses valid in the eyes of the law.

What are the penalties for breaking a fixed-term lease?

Tenants wishing to terminate fixed-term rental agreements are usually (and rightly so) concerned about high compensation and contractual penalties. These can extend far beyond a single month's rent or the security deposit paid to the landlord. We have often seen tenants or landlords ultimately forced to pay compensation amounting to several months of the payments that previously resulted from the proper performance of the agreement. Similarly, the amount of compensation for a landlord, after unlawfully terminating a fixed-term rental agreement, can easily exceed the amount of rent due for the months remaining until the end of the agreement. When landlords want to terminate a fixed-term rental agreement, they face the necessity of:

• solutions for contract termination in a manner as legally compliant as possible
• the tenant's belief that the lease agreement has been terminated
• Recovery of the premises
• to recover it in the best possible condition
• to minimise the risk of having to pay the tenant compensation

Therefore, before making a decision, it is worth looking at the matter not only as a legal problem, but as a balance of power: what follows from the contract, what follows from the evidence, what the other side truly wants, and what scenario will be most profitable for each party. And now, strictly to the point: The worst thing you can do is to delay, or to act rashly on your own. Experience teaches that the sooner professionals are involved in the matter, the greater the chance of achieving positive results. This is because it is easy to expose one's intentions, sometimes even preventing a professional from providing effective assistance later. Below, we present a detailed guide to help you preliminarily assess whether there is a possibility of terminating a fixed-term lease agreement. We hope this guide will help readers understand all aspects of this process. However, if high rent, a deposit, a contractual penalty, or the risk of litigation is involved, it is worth consulting the action strategy before sending the first letter. In such situations, we invite you to contact.

1. How can you terminate a fixed-term lease agreement?

The first most important step is to examine the contract carefully in order to understand what conditions must be met in order for a contract to be terminated before its term, according to its provisions. Each contract contains a unique catalogue of reasons for termination. There is no uniform template for a fixed-term lease agreement. In many cases, the contract contains specific provisions regarding the possibility of early termination, or hints as to the grounds on which it will be possible to terminate. Here, however, is the first pitfall - not all of these provisions are definitely valid. Key Steps:

• Find the contract and all addenda, agreements and even sometimes - email correspondence with the landlord. Put it all together in one place.
• Identify your own reasons for termination. Determine whether there are legitimate reasons to terminate the contract early, such as, for example, a material breach of contract by one of the parties. Try to identify whether you are potentially able to find such reasons.
• Consult a lawyer or other highly experienced person in this area. Rent is usually paid monthly, so the sooner the better is usually the case. What shall we do? We'll investigate:
  • A. Does the agreement contain an effective termination clause? If so, we will determine if we can try to consider that the case described in the contract or code has occurred.
  • B. Are there already grounds within this lease to state that the current state of affairs violates the agreement or legal provisions? If so, we check whether the breach gives grounds for termination, rescission of the contract, or a strong negotiating position.
  • C. Is there an economic interest for the other party in the agreement? You don't usually win on formula alone, but on a well-calculated proposal, naturally taking the regulations into account.
  • What happens if the other party refuses? A good strategy must account not only for success, but also for dispute, litigation, continued rent accrual, retention of the deposit, and an attempt to demonstrate damage.

2. How to terminate a rental agreement early? How to convince the landlord or tenant to terminate the agreement early?

Ending a lease agreement early may be possible if the agreement provides for this, or if both parties agree to it. In certain circumstances, courts may also deem an early termination to have been justified due to specific circumstances. However, courts rule this way very rarely, as this is not the purpose of fixed-term agreements. It is best to reach an agreement regarding the early termination of the contract. Although it may sound like a truism, in the case of lease agreements, amicably resolving them is a sign of maturity, not foolishness. In the cases we handle, it's often not the letter itself that proves crucial, but rather the prior determination of which arguments can truly persuade the other party to reach an agreement. Basic termination options:

• Agreement of the parties - The best way to terminate a lease early is to get both parties to agree to the termination. This may involve negotiating the terms of the early termination of the lease, such as the return of the deposit, settlement of outstanding payments, etc. There is a full range of options here.
• Breach of contract terms – You need to consider whether one of the parties is violating the terms of the contract, which sometimes gives the other party the opportunity to terminate such a contract, even if it was concluded for a fixed period.
• Special circumstances – In certain cases, which we call extraordinary, courts may consider early termination of a lease agreement – even one concluded for a fixed period – as justified. However, this is shaky ground and you have to be very confident in your arguments. In addition, the evidence must be prepared perfectly.
• Finding a new, reliable tenant in our place if we are the tenant or, if we are the landlord, another property for our tenant.

3. Can a lease agreement have no notice period? What if there is no notice period in the fixed-term lease agreement?

It's good that there isn't, because such a provision in fixed-term contracts is very often considered invalid. That's what the civil code regulations state. If a fixed-term lease agreement does not contain provisions regarding termination dependent on specific circumstances, then in the case of a fixed-term lease agreement, it generally cannot be terminated before the expiry of the term. The most important exception is if both parties agree to such a termination of the agreement, or if there are provisions in the agreement allowing it to be terminated from specific events, or when exceptional, absolutely special circumstances arise. Possibilities in this case:

• Negotiations with the landlord or tenant – The other party may try to negotiate an early termination of the contract. Such negotiations, if conducted between professionals, usually bring positive results.
• Court termination of the contract – In rare, exceptional circumstances, the court may consider early termination of the contract justified.
• Finding a new tenant. Very often, landlords are more willing to terminate the contract and, despite their initial position that it is impossible to terminate the contract, they agree to a solution that will involve them continuing to pay the rent. That is, concluding an assignment agreement under which other entities (or an entity) on the part of the tenant enter into the lease of the premises. Typically, landlords are primarily interested in renting the property and the benefits associated with it. However, at the same time, they usually make their consent conditional on whether the current tenant will be replaced by someone reliable in their leased property. This also seems completely understandable.

4. Termination of the lease agreement concluded for a specified period of time by the lessor. When and can the landlord terminate the lease?

There is a large difference here compared to indefinite term contracts, which can be terminated by the landlord almost always when it comes to commercial lease agreements – meaning when it comes to terminating, for example, a commercial property lease agreement. Or almost never when the subject of an indefinite term lease agreement is a residential property. A landlord can terminate a fixed-term lease agreement only in strictly defined cases, which are included in the agreement or result from legal provisions. Or court case law. Examples of situations in which the landlord can usually terminate the contract:

• Breach of contract terms – If the tenant does not comply with the terms of the contract, such as paying rent on time, improper use of the premises, exposing it to damage, etc. For such a solution to be effective, the landlord must do it in a manner consistent with the law and the provisions of the contract. The former usually have priority.

5. Can a fixed-term lease agreement be terminated early? How can one break a lease agreement faster? Can I resign from a lease agreement?

Yes and no. Terminating a fixed So what can a tenant or landlord do if they want to break the contract? Ways to terminate the lease early:

• Agreement of the parties - The best and simplest solution to a lease is always an agreement between the parties. Although this sometimes seems impossible or far-fetched, an experienced lawyer usually knows how to finalise such an agreement. Read: negotiate. And what arguments to use to convince the other side. After all, he or she has very often sat on the other side of the table and thus better understands the needs and intentions of the 'opponent'. Although it is finding common interests that usually leads to a consensual termination of the lease. So often overlooked by lawyers and their clients, the ability to understand the needs of the other party and to negotiate can sometimes be far more important than all the provisions of the Civil Code.
• Breach of contract terms – If one party violates the terms of the contract, in some cases the other party may demand its termination. However, this is again a risky activity and requires high precision. It's easy to lose such a case later. Many of such provisions have no legal force.
• Special circumstances Courts can order the earlier termination of a lease under special circumstances, as stipulated by the Civil Code – however, courts very rarely agree to this. Therefore, we only go to court if it is necessary, usually opting for an amicable resolution or finding provisions that are somewhat more deeply embedded in the rental agreements.

6. What is the penalty for breaking a fixed-term lease agreement?

The penalty for breaking a fixed-term lease agreement depends on the provisions of the agreement itself. In many cases, lease agreements contain clauses regarding contractual penalties for early termination. Some of them are important, others are not - unfortunately this must be examined by a lawyer. The second most important issue is the liability for damages of the party who prematurely terminates such a fixed-term lease agreement. Terminating a fixed-term lease agreement usually costs some money. The most common penalties for early termination of the contract are:

• Penalty: An agreed sum that the other party must pay for early termination of the contract. This can be a lump-sum payment that covers the landlord's losses. It is beneficial for the terminating party if the provision introducing such a contractual penalty does not include provisions for claiming additional damages. In such cases, we are dealing with a known cost – a lump-sum compensation. That is, the so-called break-up fee due for terminating a fixed-term lease agreement. Of course, this provision must also be valid, which is also not obvious. It is also worth remembering that even such a break-up fee for early termination of a lease agreement can usually be negotiated.
• Liability for lost rentThe tenant may, first and foremost, be obliged to pay rent for the period during which the premises remain unoccupied after their earlier departure. The landlord is, of course, obliged to make efforts to find a new tenant as quickly as possible. However, this may not be easy, and the premises may, for example, require renovation. It may also turn out that the only tenant found will pay a lower rent. Therefore, cases have been seen where such compensation awarded by the court was equivalent to, for example, two years' rent.
• Responsibility for repair costsIf a tenant vacates the premises, leaving them in a condition other than as stipulated in the agreement or law, they may be obliged to cover the costs of repairs or refurbishment.

7. Can a fixed-term lease agreement be terminated by mutual consent?

Agreement between parties does not always arise because the other side suddenly becomes benevolent. More often, it arises when the other side begins to understand that the dispute will be costly, uncertain, or organisationally burdensome for them. Therefore, the ground for a good agreement often needs to be properly prepared. Sometimes the argument is a defect in the premises. Sometimes it's a breach of obligations by the other party. Sometimes it's finding a new tenant. Sometimes it's litigation risk. Sometimes it's a simple economic calculation: it's better to recover some money and the premises today than to engage in a dispute for over a dozen months. This is precisely where a lawyer is most often useful – not as the author of a single letter, but as someone who can build a rational reason for the other side to agree to terminate the contract. An agreement is almost always beneficial for both parties, as it helps to avoid conflicts and potential costs associated with court proceedings.

8. What happens after the end of the fixed-term lease agreement?

At the end of a fixed-term lease, the tenant should usually vacate the premises and return it to the landlord in the condition specified in the contract. Key post-contract activities include:

• Delivery and acceptance protocol: Conducting a report that will confirm the condition of the premises at the time of its return.
• Refund of deposit: The landlord should return the deposit to the tenant, provided there are no arrears or damage to the premises.
• Settlement of all receivables: The tenant must settle all rent arrears and other fees owed to the landlord.

If the lease was for a fixed term and was not extended, the tenant has no right to remain in the property after its expiry. The landlord has the right to repossess the property and lease it to a new tenant. Unless they do not pursue this at all and the tenant continues to rent the property. In this case, we may be dealing with a so-called tacit lease extension, provided for in the provisions of the Civil Code.

9. Can I terminate an apartment lease agreement for a fixed period?

In such a case, terminating a fixed-term lease agreement is sometimes possible, but usually requires meeting certain conditions contained in the agreement. You should carefully analyze the content of the contract to check whether it provides for the possibility of early termination of the apartment lease and under what conditions. Sometimes the possibility of terminating an apartment lease agreement concluded for a fixed period also results from legal provisions. Steps to terminate the contract:

• Analyzing the contract: Check whether the contract contains any early termination clauses.
• Negotiations with the landlord: Obtaining the landlord's consent to terminate the contract early.
• Legal consultation: It is worth consulting a lawyer specializing in real estate lease matters at the very beginning. He will help you analyze the contract and advise you on the best solution, or conduct negotiations with the landlord. Why not treat a lawyer's help as a last resort? It is easy to make his work more difficult or even prevent him from completing the task with his previous movements.

10. Is there a penalty for breaking the apartment lease agreement?

The penalty for breaking a residential lease may arise from contractual provisions. In other situations, compensation is due, which in almost all cases arises from the law. Examples of early termination penalties are:

• Penalty: A fixed amount that the tenant must pay to the landlord for early termination.
• Liability for lost rent: The tenant may be obliged to pay rent for the period during which the premises remain unoccupied after the tenant has moved out early. Sometimes this takes the form of many months of compensation. Moreover, such liability results from legal provisions.
• Repair and renewal costs: If a tenant vacates the premises and leaves it in a poor condition, they may be required to cover the costs of repairs or renovation of the premises.

11. How to terminate a fixed-term occasional lease agreement?

You can terminate an occasional fixed-term rental agreement on similar terms as a standard fixed-term rental agreement. With this slight difference that the provisions of tenancy law apply even more to it.

12. How to calculate the month of notice to terminate a lease agreement?

Regardless of whether we are dealing with an indefinite-term or fixed-term contract, the notice period for a lease agreement is usually counted the same. From the first day of the month following the month in which the notice of termination was submitted. Typically, this deadline is also counted at the end of the calendar month. Example:

• If notice is given in mid-January, the notice period will begin on 31 January. And for example, with a two-month notice period, it will last until 31 March.

Of course, it is rare - but it happens that the parties agreed otherwise. Just like you shouldn't pay attention to the fact that they arrange to pick up the keys a day or two earlier or later. Of course, if it is done with their mutual consent.

13. Is it possible to withdraw from a signed lease before it comes into force?

Withdrawing from a signed lease agreement, especially one that has not yet come into effect, is an ambiguous topic. There are lawyers who see certain opportunities in such cases, while others take the stance that such an agreement cannot be terminated. A great deal depends on the individual circumstances surrounding the conclusion and nature of the agreement. Summary:

If you are considering terminating a fixed-term tenancy agreement, the most important thing is not the preparation itself