Breaking a Commercial Lease: Personal Guarantees and Exit Strategies

Key Takeaways

• Ending a commercial lease early without agreement is a breach, and the tenant can stay liable for rent and other losses.
• A personal guarantee is what makes a director personally liable for the company's obligations, sometimes even after the company stops trading. Without a guarantee, a director is generally not personally on the hook.
• Surrender by agreement, assignment and subletting are the main lawful exit routes, each with different consequences.
• A landlord generally must take reasonable steps to limit its loss once it treats the lease as ended, which can reduce a defaulting tenant's exposure.
• For leases entered after 1 August 2025, the Property Law Act 2023 (Qld) can release an original tenant and guarantor on a later assignment.

1. 1.Why you cannot simply walk away
2. 2.Where the personal exposure comes from
3. 3.Exit Strategy 1: Surrender by Agreement
4. 4.Exit Strategy 2: Assignment of the Lease
5. 5.Exit Strategy 3: Subletting
6. 6.The landlord's duty to limit its loss
7. 7.How directors can reduce personal exposure
8. 8.Frequently Asked Questions

Walking away from a commercial lease early is rarely as simple as handing back the keys. The company tenant stays exposed under the lease, and a director who signed a guarantee can be personally on the hook. This guide sets out the realistic exit routes and how to limit a director's personal exposure.

Why you cannot simply walk away

A commercial lease is a binding contract for a fixed term. Abandon the premises or stop paying rent before the term ends and that is a breach. The landlord can usually sue for the rent and other amounts owing, and may claim losses flowing from the breach. The lease does not evaporate because the business has closed. The obligation to pay continues even when the premises sit empty.

There are, however, lawful exit routes and the law places some limits on what a landlord can recover.

Where the personal exposure comes from

Most commercial leases to a company tenant are backed by a personal guarantee from one or more directors. The guarantee is the source of the personal exposure. It makes the director personally liable for the company's obligations under the lease, so if the company cannot pay, the landlord can pursue the guarantor directly and reach personal assets. Winding up or deregistering the company does not necessarily release the guarantor, because the guarantee is a separate promise.

The converse is just as important. Without a guarantee, and absent something like insolvent trading or another statutory basis, a director is not personally liable for the company's lease obligations. So the first document to review in any exit is not the lease alone but the guarantee. Its scope, its duration and whether it survives assignment dictate the director's real risk. For where else directors carry personal exposure, see our overview of director liability.

Exit Strategy 1: Surrender by Agreement

The cleanest exit is a negotiated surrender, where the landlord agrees to take back the premises and end the lease. A landlord may agree where it has another tenant ready, or where it prefers a clean break to chasing a struggling one. A surrender is usually documented in a deed that should deal expressly with the release of the tenant and, just as importantly, the release of any guarantor. A surrender that releases the company but leaves the guarantee on foot solves only half the problem.

Exit Strategy 2: Assignment of the Lease

Assignment transfers the lease to a new tenant. Most leases allow it with the landlord's consent, which often cannot be unreasonably withheld. A well structured assignment can move the ongoing obligations to the incoming tenant.

Whether the outgoing tenant and its guarantor stay liable afterwards depends partly on the lease and partly on the date it was entered. For leases entered before 1 August 2025, the position turns on the lease terms and some preserve the outgoing tenant's liability, so negotiating an express release matters. For leases entered after 1 August 2025, the Property Law Act 2023 (Qld) changes the default. If the tenant assigns, and the assignee later assigns again, the original tenant and any guarantor are released from liability for a breach by that subsequent assignee, and the parties cannot contract out of it. The release does not apply on the first assignment, so the outgoing tenant and guarantor can still carry exposure for the immediate assignee. Check which regime your lease falls under before you rely on a release.

Exit Strategy 3: Subletting

Subletting puts another occupier into the premises while you stay the tenant under the head lease. It can bring in income to offset the rent, but it does not end your liability. You remain responsible to the landlord. Treat subletting as a partial measure rather than an exit, useful when a clean assignment or surrender is not yet on the table.

The landlord's duty to limit its loss

Where a tenant defaults and the landlord treats the lease as ended, the landlord generally must take reasonable steps to reduce its loss, for example by trying to find a replacement tenant. It cannot leave the premises empty and let the rent claim mount up indefinitely without genuine efforts to re-let. That duty can materially reduce a defaulting tenant's and guarantor's exposure, and it is often central to negotiations after a tenant has left.

How directors can reduce personal exposure

A few practical steps help. Review the guarantee before taking any action. Negotiate an express release of the guarantee as part of any surrender or assignment. Make sure any incoming tenant or guarantor formally assumes the obligations. And keep the landlord informed rather than going quiet, which tends to make landlords more willing to deal. Where a dispute is already on foot, early advice can stop a bad situation getting worse. Our litigation team regularly negotiates these exits before they reach court.

Frequently Asked Questions

Can I just hand back the keys and walk away?

No. Abandoning the premises is a breach, and the tenant can stay liable for rent and other losses. If a director has guaranteed the lease, that liability can extend to them personally. The better course is a documented exit.

Does closing or deregistering my company end the lease liability?

Not necessarily for a guarantor. A personal guarantee is a separate promise, so a director who guaranteed the lease can stay personally liable even after the company ceases to exist. The guarantee has to be addressed directly, usually through a negotiated release.

Am I personally liable if I did not sign a guarantee?

Generally no. Absent a guarantee, or a separate basis such as insolvent trading, a director is not personally liable for the company's lease obligations. Check whether a guarantee exists before assuming the worst.

Will the landlord have to find a new tenant?

Once the landlord treats the lease as ended after a default, it generally must take reasonable steps to limit its loss, which can include trying to re-let. It cannot simply let the loss accumulate without genuine effort.

What is the first thing I should do?

Read the guarantee and the lease, or have them reviewed, before you take any step. Those documents determine your real exposure and which exit route is realistic.

This is general information, not advice on your situation. If you need to exit a commercial lease or are worried about a personal guarantee, get in touch or call (07) 3519 5616.

This article is for general information purposes only and does not constitute legal advice and should not be relied on as such. While we take reasonable care to ensure the accuracy of the information provided, we make no representations or warranties as to its completeness, currency or reliability. We accept no liability for any loss or damage arising directly or indirectly from the use of, or reliance on, this website's content. You should always seek professional advice tailored to your specific circumstances before acting on any information in this article. Liability limited by a scheme approved under Professional Standards Legislation.