What Happens If I Break My Commercial Lease Early in California?

Last updated: November 2026. Reviewed by Pavel Kolmogorov, California business litigation attorney (State Bar No. 321018).

If you move out and stop paying, what you owe does not simply end. Under California law the lease terminates, and the landlord can sue for unpaid rent through the end of the term, reduced by the rental loss you prove the landlord could reasonably have avoided by reletting. (Civ. Code, § 1951.2.) Some leases let the landlord keep the lease alive and bill you each month instead. A negotiated exit usually costs less. Kolmogorov Law, P.C. advises tenants and landlords in Orange County and Los Angeles.

Call (909) 235-6116 or contact us online to discuss an early exit from a commercial lease before you hand back the keys.

What you owe if you simply move out

Walking away is a breach, and the statute spells out the bill. When a tenant breaches and abandons the property, the lease terminates and the landlord may recover four things:

Unpaid rent earned before termination.
Rent that would have come due between termination and the court's award, less the rental loss the tenant proves could have been reasonably avoided.
Rent for the balance of the term after the award, less avoidable loss, discounted to present value.
Any other amount needed to compensate the landlord for harm the breach caused. (Civ. Code, § 1951.2, subd. (a).)

Two details in that list decide most cases. The burden of proving avoidable loss sits with the tenant, not the landlord. And the landlord can recover rent for the remaining years only if the lease says so, or if the landlord actually relet the space and shows it acted reasonably and in good faith. (Civ. Code, § 1951.2, subd. (c).) Our page on mitigation of damages explains how that proof works.

In a strong rental market the exposure may be a few months of rent plus the landlord's reletting costs. In a weak one it can approach the full remaining rent.

When the landlord can keep the lease alive

A second statute gives the landlord a different choice. If the lease provides for it, the landlord may leave the lease in effect after the tenant abandons and recover rent as it comes due. That continues for as long as the landlord does not terminate the tenant's right to possession. (Civ. Code, § 1951.4, subds. (a), (b).) The condition is that the tenant has a right to sublet or assign, subject only to reasonable limits.

Check your lease for this remedy before you plan around mitigation. Many institutional forms include it, often by reciting the statutory language. Under that remedy, finding a replacement becomes your job.

Assignment and sublease are often the real exit

Many commercial leases let the tenant transfer the space with the landlord's consent. That clause is often the cheapest way out, because a replacement tenant pays the rent you no longer want to pay.

California sets the ground rules by statute. A lease may prohibit transfer outright. (Civ. Code, § 1995.230.) If the lease requires consent but states no standard, the law implies one: consent may not be unreasonably withheld. The tenant carries the burden of proof, and can meet it by showing that the landlord failed, after a written request for its reasons, to state a reasonable objection in writing within a reasonable time. (Civ. Code, § 1995.260.) The California Supreme Court reached the same rule earlier for commercial leases and said that refusing consent in order to charge a higher rent is not commercially reasonable. (Kendall v. Ernest Pestana, Inc. (1985) 40 Cal.3d 488, 501, 506-507.)

If the landlord unreasonably refuses, the tenant has contract remedies, including damages and the right to terminate the lease. (Civ. Code, § 1995.310.)

One caution. An assignment does not usually release the original tenant unless the landlord agrees to a release. If the new tenant defaults in year two, the landlord can generally still look to you. Our page on contract assignment covers the difference between assigning rights and shedding duties.

Negotiating a surrender

A landlord with a vacant, non-paying unit and a tenant with a statutory mitigation argument both have reasons to settle. The usual deal is a written surrender agreement: the tenant returns possession on a set date, pays an agreed sum, and receives a release of the remaining rent.

In my experience the tenant who opens that conversation while still current on rent gets better terms than the one who calls after a default notice. Bring the landlord a number, a date, and if possible a replacement prospect.

Some leases already contain an early termination clause with a fee and a notice period. Follow it exactly. If the fee is treated as liquidated damages, it is valid in a business lease unless the party attacking it proves it was unreasonable when the lease was signed. (Civ. Code, § 1671, subd. (b).) Our page on liquidated damages explains the test.

The personal guaranty and the security deposit

Closing the entity does not close the file if an owner signed a guaranty. The landlord's claim under section 1951.2 can be pursued against the guarantor, subject to the guaranty's terms. Read our page on personal guaranties before assuming the LLC absorbs the loss, and make sure any surrender agreement releases the guarantor by name.

The deposit is part of the accounting. A commercial landlord may apply it to unpaid rent, repairs, and cleaning, and must return the remainder no later than 30 days after receiving possession in most situations. (Civ. Code, § 1950.7, subd. (c).)

If you are the landlord

Decide early which remedy you are using, because the two statutes point in different directions. If you terminate, document every step of the reletting effort: listing dates, broker reports, showings, offers, and concessions. That file answers the tenant's avoidable loss defense. If you plan to hold the tenant to the lease under section 1951.4, confirm the lease contains the remedy and do not unreasonably block a sublease, or you may lose it.

What to bring to the first meeting

The lease, all amendments, and any guaranty.
A rent ledger and the security deposit amount.
Recent financial statements for the location.
Any broker opinion on the market rent and time to relet.
Correspondence with the landlord about closing, subletting, or assignment.

Frequently asked questions

My store is losing money and I have three years left on the lease. What happens if I just move out?

The landlord can treat the lease as terminated and sue for back rent plus future rent, offset by the rental loss you prove it could have reasonably avoided. (Civ. Code, § 1951.2.) If the lease includes the remedy, the landlord can instead keep it in force and collect rent monthly. Under California law, moving out without an agreement leaves the size of the bill to the rental market and to your landlord's choices.

Does a commercial landlord have a duty to mitigate in California?

Generally, yes. The California Supreme Court has said that when a tenant abandons, the landlord has a duty to mitigate by seeking a substitute tenant, and the damages statute enforces it. After a lease terminates on the tenant's breach, the landlord cannot recover rent the tenant proves could have been reasonably avoided, so a landlord who lets the space sit takes a risk. The tenant bears the burden of proof. A landlord holding the section 1951.4 remedy may instead keep the lease in force and leave reletting to the tenant.

Can my landlord refuse to let me sublease or assign my commercial lease?

It depends on the lease. A California commercial lease may prohibit transfers entirely. If it requires the landlord's consent without stating a standard, consent may not be unreasonably withheld. (Civ. Code, § 1995.260.) A refusal aimed only at extracting higher rent has been held unreasonable. If the lease sets express conditions for consent, those conditions generally control.

I personally guaranteed my company's lease. If the business closes and we give the keys back, am I still on the hook?

Usually, yes. Returning the keys does not release a guarantor unless the landlord agrees to a release. In California the landlord's damages for the unexpired term can generally be claimed against the guarantor under the terms of the guaranty. A surrender agreement should name and release each guarantor expressly, and the release should be signed before possession is returned.

Is an early termination fee in a commercial lease enforceable?

Often it is. Where the fee works as liquidated damages in a California business lease, it is valid unless the party challenging it proves the amount was unreasonable under the circumstances that existed when the lease was made. (Civ. Code, § 1671, subd. (b).) The tenant must also follow the clause's notice and timing requirements to use it.

Talk to a California commercial lease attorney

If you need out of a commercial lease, or your tenant has left with years remaining, call (909) 235-6116 or contact us online. Kolmogorov Law, P.C. is located at 327 Magnet, Irvine, CA 92618, and represents businesses in Orange County, Los Angeles, and throughout California.

This page provides general information about California law and is not legal advice. Outcomes depend on the lease, the rental market, the facts, and the court.