A year or two into a long-term lease and it feels like breaking your commercial lease is your only option. Each business will have a unique reason, or set of circumstances surrounding why they need an early termination. Startups are especially susceptible to change and are often in a greater need for rent flexibility to match their uncertain future. In that situation, they may even consider a lease assignment, which means the remaining interest of your lease is transferred entirely to a new tenant.
If you are looking to sublease your office space working with a tenant broker may help. A tenant broker can find you a new location in addition to securing a new tenant to take over the remaining months left on your lease.
For example, SquareFoot has the functionality to post your sublease on their office listings platform so prospective tenants can view your space. You can also negotiate with your landlord to buy-out your remaining lease. This could come in the form of all or part of your security deposit or a lump-sum payment.
An office lease buy-out will likely cost you more than a sublease, but The Self Employed offers some simple math to keep that cost in perspective. A leasing company might be willing to take less if it thinks it could lease it again fairly quickly. The key to all these options is negotiation.
Preparation and information will help smooth the process over, but since all commercial tenants would prefer to not go through the process in the first place, here are some tips to avoid breaking a lease in the future:. Flexible office space continues to be a modern trend and, as an added bonus, remains more affordable than traditional office space in most cases.
SquareFoot offers a number of flexible options that can provide solutions to avoid an early termination. Even when renting traditional office spaces, you might be able to negotiate a shorter lease. What this means is that it really depends upon the facts of the situation; certain facts make getting out of the lease easier.
If you are in a good space in a popular area, your landlord will be more inclined to an early termination of the lease if …. Look for a clause: Re-read your lease and look for either a bailout clause or a co-tenancy clause. A bailout clause allows you to get out of the lease if your sales do not reach a pre-set level. A co-tenancy clause lets you leave if an important anchor tenant leaves, which may be the case here.
Ask: If you are in a good space in a popular area, your landlord will be more inclined to an early termination of the lease than if you are in a bad space in a hard-to-rent location. Landlords may be amenable to your request to end your lease early because they could probably rent it for longer for more money. You cannot get out if the carpet was not cleaned this year, but you could if the roof partially caved in and the landlord failed to repair it. With a sub-lease, someone else will come in, take over the space and pay the rent, but you remain legally liable for it if they miss payments.
When the landlord refuses to to negotiate or threatens litigation, it is time to seek a knowledgeable business attorney. Commercial leases are typically treated as a contract by the courts, and unless there is a provision in the lease to the contrary, usual contract principles apply.
The terms specifically included in the lease will dictate how that lease is interpreted and enforced. When a commercial landlord claims a breach of contract has occurred, they will need to prove:.
There may be misrepresentations by the landlord, or problems created by poor maintenance or property upkeep, that justify the termination. At this point, any tenant or business owner needs a business real estate attorney present to guide the tenant through the legal process. For Houston business owners, rental costs can be a significant financial burden. Breaking a commercial lease can be costly and even have personal ramifications beyond your business.
Here's how to do it right. Real estate has long been the go-to investment for those looking to build long-term wealth for generations. Let us help you navigate this asset class by signing up for our comprehensive real estate investing guide. In commercial real estate , there may come a time as a commercial tenant or commercial landlord you'll want to break the commercial lease.
Breaking a commercial lease isn't ideal for either party, but it can be a necessary business decision in certain scenarios. Since a commercial lease agreement is a contractual obligation, both parties should understand the consequences, costs, and options for an early termination before entering into a commercial lease.
However, if that contract needs to end, learn what the process of breaking a commercial lease is, possible consequences for the breaking party, and ways to create the best possible outcome for everyone in this step-by-step guide. There are several reasons a business owner or landlord may want a lease termination. Some of these include too-high or low rent in the current market; needing to downsize or move into a larger space; closing the business; disputes between the landlord, tenant, or other neighboring tenants; or an inability to maintain the rent or lease terms for the remainder of the lease.
A commercial lease termination is a serious business decision that should be considered carefully. Tenants may be obligated to pay steep fines, and landlords may be faced with a slower rental market, lower rent, or high vacancy rate as they try to find a replacement tenant.
Taking appropriate action to end the commercial real estate lease on the best possible terms can save everyone time, energy, and money. In most cases, the legal obligations are clearly defined in the lease contract, which can vary depending on the type of lease or commercial space being rented.
Keep in mind that even if a breach of contract has occurred, there are almost always additional terms stating that the offending party has a specified length of time to remedy the situation before termination or legal action is allowable. If the issue extends beyond the language defined in your lease, early termination may be the next-best course of action. Start by referring to your lease's early termination clause or break clause.
This clause should state either party's right to break the commercial lease before the lease term is over, the costs associated with breaking the lease, and the process to initiate this.
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