Sub-Leasing and Lease Surrender: A Guide for Commercial Tenants

Last updated August 2026

A commercial lease is a binding contract for a fixed term. When circumstances change and a tenant needs to move on before the lease expires, there is no automatic right to walk away. There are three established structures for dealing with premises you no longer need, and they achieve very different outcomes. Sub-leasing is the option most tenants ask about first, but it is not usually the one that achieves what they actually want.

If you have surplus space but intend to remain in occupation, a sub-lease may suit. If you are selling your business and the purchaser wants the site, an assignment is usually the appropriate mechanism. If you are vacating entirely and want to be released from the lease, a surrender conditional upon a new lease is generally the most effective structure, and it is the most common scenario we handle.

Each option requires the Lessor's agreement, unless that agreement is already accounted for in the original lease. For example, a tenant may have negotiated terms in their original lease providing permission to sub-lease. Absent such a provision, none of these options can be actioned by the tenant alone.

What is Sub-Leasing?

Sub-leasing occurs when a tenant (Lessee), who has a lease agreement with a landlord (Lessor), rents out or allows the use of all or part of that property to another party (Sub-Lessee). The lease between the landlord and tenant is referred to as the headlease, and the lease between the tenant and their sub-lessee is a sub-lease.

Can I Sub-Lease My Commercial Premises?

Standard practice is for a condition to be contained in the commercial property lease that will outline how sub-leasing is to be handled. This usually states whether the tenant can or cannot sub-lease the property, and whether the landlord needs to provide permission or if they can decline the request.

In most cases the Lessor's permission is required before a sub-lease is executed or a sub-tenant takes occupation of the premises. Permission should be obtained in writing before any sub-lease agreement is signed and before anyone moves in. Seeking approval after the fact is not the same thing and can place the Lessee in breach.

What are the Benefits of Sub-Leasing?

Sub-leasing commercial property can be a beneficial strategy for tenants who find themselves underutilising space or facing financial challenges. The sub-tenant may benefit from being able to occupy space they may not otherwise be able to source or afford.

What are the Risks of Sub-Leasing?

There are a number of inherent risks involved for the Lessor, Lessee and Sub-Lessee:

• The Lessor has the danger of damage or additional wear and tear to the property from a party they may not have a direct agreement with.
• The Lessee may open themselves up to liability for actions or inactions by the Sub-Lessee. The original tenant remains responsible for rental payment, makegood, and any violations of the headlease terms. There may also be less security (eg. cash bond and guarantees) held by the Lessee over the Sub-Lessee which lowers the protection for the performance of the covenant compared to a standard landlord/tenant relationship.
• The Sub-Lessee has an increased risk as they will most likely not be aware of breaches of the headlease by the Lessee. This means the sub-tenant could be locked out without notice. Sub-Lessees may not have the same rights as the original Tenant such as an option to renew the lease, and may not know other crucial terms of the headlease which could ultimately affect them.

Sub-leasing commercial property could also introduce risks regarding insurance, public liability, security of stored goods and valuables, and potential difficulty in attributing costs such as electricity and water.

A sub-lease also cannot extend beyond the expiry of the headlease. A Lessee with two years remaining can only offer a two year term, which materially reduces the pool of interested parties. Most businesses seeking premises require a term they can plan around, together with options.

The Sub-Leasing Process

In general, the following process should be enacted:

1. Consider The Risks: The tenant, landlord, and sub-tenant should consider the advantages and risks before requesting or committing to a sub-lease.
2. Review The Lease: Parties should review the headlease to ensure a potential sub-lease complies.
3. Obtain Landlord Approval: The tenant or their appointed real estate agent should seek explicit permission from the landlord before seeking or approving a sub-tenant.
4. Draft a Sublease Agreement: A legally binding sublease agreement is typically produced by the landlord or the tenant's solicitor that outlines the terms and conditions between the tenant and the sub-tenant.
5. Notify the Landlord: Provide your landlord with a copy of the sublease agreement noting the final version may need to be formally agreed to by the landlord. Access should not be granted to the incoming tenant until this has been completed.

Back to options overview

What is a Lease Assignment?

An assignment transfers the existing lease, with its remaining term and conditions, to an incoming tenant. The lease itself continues. What changes is who holds it.

This is commonly used where a business is sold as a going concern and the purchaser requires the site to continue trading from. Our guide to going concern sales covers that scenario in detail.

An assignment requires the Lessor's consent, and whether the outgoing tenant is fully released from future liability depends on the terms of the assignment and, for retail shops, on statutory requirements being met.

Back to options overview

What is a Lease Surrender?

A lease surrender is a legally binding document between the Lessee and the Lessor that ends a lease before its expiry date. The lease is brought to an end by agreement and the Lessee is released from their remaining obligations under it.

There are many situations in which a Lessee may seek to exit an existing lease agreement before the lease expiry date. Common reasons include relocating to an alternative tenancy, consolidating business locations, outgrowing the space, downsizing, or no longer requiring the premises.

How Does a Conditional Surrender Work?

The Lessor is generally only prepared to approve a surrender where they are not disadvantaged financially. In most cases this requires a replacement tenant to be secured on a formal lease agreement before the surrender can proceed.

Two documents are prepared, and they are drafted so that neither takes effect unless both do.

Does the Landlord Have to Agree to a Surrender?

No. The Lessor is the decision maker and has the legal right to decide whether to approve a surrender.

The prospective replacement tenant will usually submit a formal offer to lease, together with supporting documentation, for the Lessor's consideration. Determining factors may include whether the replacement tenant is viewed as a suitably strong covenant, the proposed use of the new tenant, and the likely effect of the new operation on existing tenants where applicable.

A well presented offer to lease is important. A replacement tenant whose covenant and proposed use are properly evidenced will move through the approval process considerably faster than one who is not.

What Rent Does the New Lease Need to Achieve?

This is the point most exiting tenants do not anticipate, and it matters more than any other single factor.

A Lessor will usually only agree to release the outgoing Lessee where the replacement lease is at or above the existing rental. The Lessor agreed a rate for a fixed term and is not obliged to accept less in order to accommodate a tenant who wants to leave early.

Where the best rent achievable in the current market sits below the passing rent, a surrender can still proceed. In that case an agreement is generally negotiated whereby the exiting Lessee pays the shortfall between the new rental and the existing rental. That shortfall is a commercial term to be negotiated, and the period it applies for will form part of that negotiation.

Understanding this early matters, because it determines whether a surrender is realistic and what it is likely to cost.

What Costs Are Involved in a Lease Surrender?

A surrender creates costs the Lessor would not otherwise have incurred. These are therefore payable by the exiting Lessee, and include but may not be limited to:

A marketing quote and agent fee quote is provided to the exiting Lessee for approval prior to engagement, via a Form 6A appointment.

Where an entry report was completed at the commencement of the lease, the makegood discussion is usually far shorter and better evidenced.

The Lease Surrender Process

In general, the following process should be enacted:

Back to options overview

Do Retail Shop Leases Differ?

Yes. Retail shop leases in Queensland are governed by the Retail Shop Leases Act 1994, which adds statutory requirements to all three options set out above. Retail shops in New South Wales are governed by separate legislation with its own assignment and disclosure requirements, and Lessees in Northern New South Wales should confirm what applies to their premises.

In Queensland, the principal points of difference are:

• Sub-leasing carries additional obligations: A sublessor of a retail shop takes on its own disclosure obligation to the Sub-Lessee, in addition to the rental liability that already exists under the headlease.
• Assignments follow a prescribed sequence: Disclosure statements must pass between the outgoing tenant, the incoming tenant and the Lessor, with statutory timing attached. Whether the outgoing tenant is released from future liability can depend on that sequence being followed correctly.
• New leases carry a disclosure period: Where a new retail shop lease is granted, the Lessor's disclosure statement must be given to the incoming tenant at least seven days before they enter into the lease. This period should be allowed for within the transaction timetable.

Whether a particular premises constitutes a retail shop under the Act is not always apparent from the use alone. This should be established early, as it affects the process.

Should I Utilise a Real Estate Agent?

Sub-leasing, assigning and surrendering commercial property can be complicated processes. You do not know what you do not know, so if a landlord or tenant mishandles any of these arrangements there could be dramatic ramifications.

Crew Commercial agents and property managers are highly experienced in handling sub-lease arrangements, assignments and lease surrenders, and have assisted many tenants in this position. Each involves negotiations between three parties rather than the standard landlord and tenant relationship, plus multiple solicitors and different legal documents. In a surrender, the outcome also depends heavily on how quickly and at what rate the premises is leased.

The agent's role is to assist all parties to reach a workable outcome by sourcing and qualifying a replacement tenant, presenting a properly evidenced offer to lease for the Lessor's consideration, and keeping both transactions moving in step.

Not all commercial properties have a property manager. Many Lessors manage their own premises, in which case the tenant deals with the Lessor direct, or the Crew Commercial agent speaks with the Lessor on the tenant's behalf, which is usually the most effective approach. Where a property manager is appointed, such as Crew Property Management, they are involved in the process as well.

Lessees should not market the premises themselves. Most leases restrict advertising and signage without consent, and a Lessor assessing a replacement tenant will expect the covenant to have been properly qualified before it reaches them.

Conclusion

Sub-leasing commercial property can be a viable option for tenants seeking to lower their rental exposure or utilise unused area. However, it is essential to understand the legal implications and potential risks, and a sub-lease does not release the Lessee from the headlease.

Where the objective is to exit the premises entirely, a lease surrender conditional upon a new lease is generally the more effective structure. It releases the Lessee, provides the Lessor with a direct replacement tenant, and gives the incoming tenant a lease in their own name.

If you are considering exiting a commercial lease before its expiry, speak with one of our commercial property specialists about your tenancy and the likely outcome in the current market.

The information in this article is a guide for those interested in commercial property. We encourage parties to read the wording of their lease, conduct their own research, and seek independent legal advice should you need to make decisions relating to items discussed.