Form-of-the-week: Termination of Lease and Surrender Agreement – Form 587

Consider a tenant who breaches a nonresidential lease agreement before the lease expires and vacates the premises without the landlord’s service of a three-day notice to quit on the tenant. The landlord may respond to possession in one of four ways:

• terminate the tenant’s right of possession and cancel the lease agreement by a surrender, then relet the premises to others or occupy the premises as the owner [See first tuesday Form 587];
• terminate the tenant’s right of possession using a three-day notice containing a declaration of forfeiture (or a notice of abandonment), then take possession and relet the premises to mitigate losses before making a demand for payment of future rents [See first tuesday Form 575 and 581];
• take possession of the premises and relet it on the tenant’s behalf, then collect any monthly losses from the tenant; or
• enforce any tenant-mitigation provision in the lease agreement, leaving the tenant in possession to relet the premises to mitigate the tenant’s losses.

Only ownership of a real estate interest, such as a leasehold interest, and personal property may be forfeited. However, a contract, such as a lease agreement, is not property. A contract is evidence of rights and obligations. Thus, it may be cancelled, but it cannot be the subject of forfeiture.

A surrender occurs when:

• a tenant breaches a lease or rental agreement and vacates or intends to vacate the premises; and
• the landlord agrees to accept a return of possession from the tenant in exchange for cancelling the lease agreement.

A surrender occurs due to the cancellation of the lease agreement by either:

• mutual consent of the landlord and the tenant [Calif. Civil Code §1933(2)]; or
• operation of law, implied due to the conduct of the landlord.

For a landlord to avoid adverse legal consequences when a tenant prematurely vacates, lease agreements contain a remedies provision stating a surrender can occur only if the tenant enters into a written cancellation and waiver agreement. [See first tuesday Form 552-3 §20.1]

first tuesday’s Termination of Lease and Surrender Agreement provides the writing used to mutually terminate a lease agreement and release the tenant and landlord from any further obligations and liability under the lease agreement. [See first tuesday Form 587]

This lease termination and surrender agreement provisions include:

• the termination date on which the tenant is to quit and surrender possession of the premises to the landlord in consideration for cancellation of the lease agreement [See first tuesday Form 587 §2];
• a release between the landlord and tenant from all claims and obligations, known or unknown, arising out of the lease agreement and possession [See first tuesday Form 587 §2.1];
• any monetary consideration to be paid by the tenant to the landlord for entering into the termination agreement [See first tuesday Form 587 §2.2];
• a description of any conditions to be performed prior to cancellation, which may include any payment the landlord will make to the tenant, such as a return of deposit, prepaid rent or settlement money on a dispute [See first tuesday Form 587 §2.3]; and

conditions pertaining to a subtenant, if any, that needs to be arranged and agreed to. [See first tuesday Form 587 §2.4]