Getting Out Of a Commercial Real Estate Lease
Your reason for wanting to get out of a commercial real estate lease will factor into the method you choose. A tenant generally wants out of a lease because:
- Business is growing and the facility is too small
- Business is bad and the rent payment is too high or you simply want to close up shop
- You are dissatisfied with the service of the landlord or how the terms of the lease are being handled
If you need to move to a larger space or a better location, one option is to sublease the space to someone else. You must first make sure subletting is allowed in the terms of the lease. Most often a sublet is allowed with the approval of the landlord. You will still be obligated to the landlord if the subtenant defaults on payment.
Another option, if business is going well, is to buy out the remaining portion of the lease with a lump sum payment. If the landlord will be able to rent the space without much difficulty, your buyout price will be far less than the amount remaining on the lease. This payment may be worthwhile if you are moving to a bigger space or better location.
If business is going poorly, you can also look to sublet, or find a new tenant with whom the landlord can negotiate a new lease for more money. Talk to your landlord about the situation. Landlords usually do not benefit from having a tenant who might be headed toward bankruptcy, so they may allow you to rent out the space, or a portion thereof, while actively looking to find a new tenant.
If you are dissatisfied with the manner in which the landlord is meeting the terms as outlined in the initial lease, re-read your lease carefully and see if any terms have been violated that allow you to break the lease. Read the section on how all disputes will be handled. Do you have sufficient grounds to get out of the lease? If, for example, the lease states that you will have the only jewelry store in the mall, but a department store opens directly across from you, selling jewelry in one of their many departments, does that violate the lease? Your business is being affected. If you are paying a percentage of your business to the landlord, then this drop in business is also affecting his or her share of your rent. Therefore, the landlord may try to work out a compromise solution, which might mean relocating your shop or talking with the department store about moving their jewelry department farther away from your store.
You should first make an effort to work out the situation with your landlord rather than having to resort to legal action. Legal counsel can advise on situations whereby you are looking to get out of a lease because you are dissatisfied with how the terms are being handled.
More articles from AllBusiness.com:
