A Comprehensive Guide to a Mutual Lease Termination Agreement Template

What is a Mutual Lease Termination?

A mutual lease termination agreement is a unique document, which as its name implies, results in the termination of a lease when signed by both parties to the lease (the landlord and the tenant). However, a mutual lease termination agreement is more significant than an ordinary termination of a contract because it also provides a release of liability by and between the parties. Stated otherwise, a mutual lease termination agreement terminates the lease and precludes any future actions amongst the parties regarding the lease.
For example, if a mutual lease termination agreement is not signed by both the landlord and tenant, then the tenant could pursue a legal action against the landlord for a rent deficiency or other breach of the lease . Therefore, although the lease will be voided, absent a mutual lease termination agreement, either party could still pursue a claim against the other. Since the mutual lease termination agreement unequivocally releases the parties from all claims whatsoever and permits the landlord to relet the premises to any other party, there is no further risk to the landlord. Of course, the biggest risk to the landlord utilizing a termination of lease rather than a mutual termination of lease is that the release between the parties is limited to those claims arising from or relating to the lease. Accordingly, for any claims not arising under the lease, the landlord or tenant may end up initiating an action with the risk that the other party will counterclaim for damages.

Essential Elements of a Lease Termination Agreement

The key components to a Mutual Lease Termination Agreement are the names of the parties, the termination date, obligations and penalty.
The Mutual Lease Termination Agreement should list the names of the tenants who need to terminate the lease, the names of the landlords and/or property managers who are parties to the lease and the property that is being leased. It should also state the rental rate paid, when the last payment will be due and if the property is furnished. The parties may include an addendum that sets out the items that are being left in the place or any other provisions they deem fit.
The Mutual Lease Termination Agreement should state the date the lease is being terminated. A reasonable termination date typically depends on the circumstances surrounding the tenant’s need to vacate the property. The ratio is normally 30-60 days, but the parties have all the control over this date and can agree to whatever is best for them.
The Mutual Lease Termination Agreement may have several obligations within it. The first obligation is to simply vacate the premises by the termination date. However, the parties commonly have obligations concerning moving out and cleaning the property. Usually, the obligation is that the property has to be left clean and in good condition, and all belongings must be removed. Also, unless the property is not furnished, the furnishing on the property should be left in the same condition they were at the beginning of the tenancy, excluding normal wear and tear.
The parties usually list some penalties or damages for violations of this Agreement. These damages in a Mutual Lease Termination Agreement may include: 1) the loss of the last month’s rent, 2) the loss of security deposits, 3) damages for early termination and 4) agreed upon attorney’s fees.

When to Consider a Mutual Lease Termination

A mutual lease termination agreement can be helpful in a number of situations where both the landlord and tenant find themselves in a situation where terminating the lease agreement may be beneficial. Below are just a few examples of situations where a mutual lease termination agreement may be helpful:
Relocation of the Tenant
The most common type of a mutual lease termination occurs when a tenant is relocating from an area and wishes to terminate their lease prior to the expiration date. In this type of an example, the tenant and landlord have a mutual interest in closing out the lease agreement.
Change to the Property
Another example where a mutual termination lease agreement would be useful is when the property is changing hands. This often happens when a property has been sold to a new owner, but the new owner currently has no use for the property. In this example, the landlord/owner of the property and the tenant would be better off entering into a mutual lease termination so that both parties can move on to something more fitting for their needs.
The Property No Longer Meets the Needs of the Tenant
A third example of when a mutual lease termination agreement comes in handy is when the property no longer suits the needs of the tenant. For example, if a tenant is leasing a small space but then decides to move into a larger one due to a growing family or job opportunity, a mutual lease termination would help both parties.

Legal Implications of Lease Terminations

Whether you are considering a mutual lease termination agreement as a business owner or landlord, it is important to be aware of some of the potential legal issues you may encounter and make sure you take the appropriate steps to handle them effectively.
Tenant Rights
Most states afford tenants certain rights under state law, regardless of the specific terms of their lease agreement or any other governing document. For example, it is common for states to require landlords to give at least 30 days’ notice before terminating a lease or eviction a tenant, or that they provide tenants with certain amenities and conditions as part of the rental agreement.
In addition to these general statutory requirements, some states and jurisdictions grant further protections to tenants, including the following:
Landlord Obligations
Just as tenants have rights under state and local laws in regard to lease termination, so do landlords. Before terminating a lease with your tenant, confirm that you meet all legal obligations to ensure you are protected if you ever need to defend against a claim brought against you or your company.
Local Property Laws
On some occasions, landlords may discover that their local property laws are more favorable to tenants than to landlords, and will need to tread carefully to avoid potential legal consequences for violating those laws. As a result, read local property laws carefully to ensure you not only have the right to legally terminate a lease, but also the correct procedures for doing so.

How to Draft a Lease Termination Agreement

Negotiating the termination of a lease is a critical step in the dissolution of a landlord-tenant relationship without significant conflict. It is not advisable to create an oral understanding of a termination as substantial issues may arise post-termination. A properly drafted lease termination agreement which both parties to the lease sign is the best option for terminating a lease.
In order to craft a mutual termination of a lease that ultimately protects both the landlord and tenant, you should follow these steps:

Often, there are several issues that have led to the parties agreeing to a termination of the lease. A meeting will be required to discuss all of the issues, including key dates for the end of the tenancy, who will pay what to whom, and all other issues that need to be addressed .
After the parties reach agreed terms, one party should draft a draft termination agreement and send the draft to the other party. This is generally done by e-mail. If there are questions about the agreement by the second party, a new round of negotiation may be needed. Negotiations may continue until both parties are satisfied the terms of the lease termination are satisfactorily addressed.
After the parties have signed the termination agreement, the agreement should be dated. Also, each party should retain an original copy. The parties may then follow further steps in preparing the premises for the end of the tenancy.

Typical Pitfalls

Common mistakes to avoid in drafting or executing a mutual lease termination agreement
One of the more common mistakes made in "mutual cessation" or "mutual termination" agreements is for one party to sign without the other party signing as well. These documents should always be mutual in that they require agreement and signatures from both parties. Otherwise, you may find your interests and rights are not properly protected and you may find yourself back where you started – with the tenant still in the space.
Another mistake made by landlords when using a mutual termination template form is that they forget to provide for the release of any security deposit back to the tenant. If the lease provides that the landlord is entitled to keep the security deposit, the landlord will want to make a provision in the termination agreement that the tenant is entitled to the return of the security deposit.
Ideally, the mutual termination agreement should include release language wherein both parties release the other from any and all claims, disputes, rights and actions for any reason whatsoever related to the lease or the premises or the termination of the lease. If any claims or disputes are still outstanding between the parties, this should be made known in the mutual termination agreement and the parties can choose whether or not to execute the termination without first resolving these outstanding claims.
One important issue with mutual termination agreements is whether the parties Agree to a Mutual Termination Agreement. If they do, then the mutual cessation of the lease will take place on the date specified in the mutual termination agreement. Some landlords prefer the right to terminate at a future date pursuant to a unilateral notice, meaning a mutual termination agreement is not required. Some tenants prefer to have the opportunity to terminate the lease once they receive notice from the landlord as they can then go out onto the market to start the process of locating a new space and avoid being forced to occupy a space that is not suitable or without the ability to commence construction in the space.
A good mutual early termination agreement template will:
Landlords will also want to ensure the mutual termination agreement includes a release of obligations and liabilities by both parties with respect to the lease agreement and any and all claims, demands, actions, costs, liabilities or expenses arising from, or relating to, the lease including the right to claim against the security deposit.
Tenants will want to ensure that they are released from any liability under the lease agreement and receive a copy of the fully executed agreement and the return of any security deposit.

Using an Agreement Template

Utilizing a template can also make the process more efficient than drafting an agreement from scratch. Of course, the quality of the efficiency will depend on the quality of the template. With a high quality, professionally drafted template, you will still need to address the issues unique to your lease termination, but there will be little to no drafting required as the document will be in good, advanced form. If, on the other hand, you use a low quality template (a template prepared by a non-lawyer or an online template prepared by a lawyer who does not specialize in drafting commercial lease termination agreements), you may find that you need to spend more time figuring out how to rewrite portions of the agreement so that they comply with commercial real estate laws in your state and with the needs of the tenant and landlord. This is because, in most cases, definitions, pre-existing assignments and transfers, notice provisions, and provisions dealing with the aftermath of the lease termination, will need to be rewritten to comply with the laws in your respective states. All of these provisions cannot be cut and pasted from the old lease as they most likely do not comply with the law. A high quality template should have all of these provisions drafted in a way that does not need to be altered.

Conclusion: Advantages of Mutual Lease Termination

In conclusion, a mutual lease termination agreement serves a variety of overarching purposes and protections for both landlords and tenants. For landlords, such an agreement helps them avoid handling the costs and risks of having to pursue tenants through the relevant eviction procedure for a tenancy that is possibly non-tenant initiated and not particularly welcome. For landlords, the mutual termination agreement is easy to draft, cost effective, and promptly executed . For tenants and landlords, a mutual termination agreement is also an opportunity for the landlord to seamlessly return the security deposit to the tenant and for the parties involved to resolve any outstanding matters, such as rental or other arrears. A well drafted mutual termination agreement also protects both parties by providing them with a legally enforceable written record of their agreement, the terms of their mutual termination, and any other matters they resolved as a result of the arrangements provided therein.