Issue with Early Termination of Office Lease

A company, which we will refer to as “the tenant”, entered into a lease agreement for office space in Bali with a lease term spanning February 27, 2024, to February 26, 2025. However, on September 27, 2024, the company ceased its operations and opted to terminate the lease agreement prematurely, well before the agreed-upon end date.

·  Deposit: The property owner, referred to here as “the lessor”, declined to refund the deposit of 14,544,000 Indonesian Rupiah, citing a clause in the lease agreement that explicitly states the deposit is non-refundable in the event of early termination.

·  Service Fees: According to another clause in the lease agreement, the tenant was required to pay the full amount for 12 months' worth of service fees in advance, despite the early termination of the lease.

·  Additional Costs: As stipulated in the lease agreement, the lessor requested payment for pest control services, as the agreement specified that such expenses were the tenant's responsibility.

Through negotiations with the lessor, the tenant successfully secured a reduction in payments and found solutions to address and bypass certain clauses in the lease agreement:

• Service Fee Reduction: The lessor agreed to reduce the service fee by 28,700,160 Rupiah for the period from September 27, 2024, to December 26, 2024, on the condition that the company resumes operations on January 2, 2025. If operations resume, the tenant will continue paying the service fee for the remaining lease term.

• Deposit Refund: At the end of the lease term, the lessor agreed to return the deposit of 14,544,000 Rupiah.

However, under this new agreement, if the tenant cancels the agreement and does not resume operations by January 2, 2025, the following consequences will apply:

• The deposit will be forfeited.

• All fees and payments made will be non-refundable.

• The tenant must return the premises to its original condition by January 16, 2025.

• Any disposal fees exceeding 28,700,160 Rupiah, incurred before the premises are returned, will be charged to the tenant for payment.

Available Options:

1. Hiring an Employee to Maintain the Office : The tenant could hire an employee to come to the office during the week for a few hours each day, paying them 1.5 million Rupiah per month. This option would allow the tenant to fulfill the lease agreement’s conditions without resuming full operations. It is more cost-effective than terminating the lease early, as the total financial loss—when considering the employee's salary and the eventual return of the deposit—would amount to 3 million Rupiah.

2. Option to Terminate the Lease Early:

• Service Fees for 5 Months: 35,875,200 Rupiah

• Deposit: The deposit of 14,544,000 Rupiah is non-refundable.

Before Signing the Lease Agreement:

We strongly recommend consulting with our lawyers to ensure everything is in order. We’ll assist you in avoiding potential issues, ensuring the agreement is drafted correctly, and safeguarding your interests.

Contact us for details