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Terminating a Commercial Lease

When tough economic conditions hit local economies, it is not uncommon for businesses to have to make difficult decisions. Many times, a business must reduce expenses by cutting payroll costs or eliminating advertising budgets. Many business owners might even go for several months at a time without paying themselves because the profits are not there and it is the only way to keep the doors open; but sometimes, there just is no option remaining for a business other than to simply close the doors. While this is a true hardship for any business, it becomes even more complicated when there is a long-term commercial lease associated with the business property.

When a business is faced with the prospect of closure, honoring the terms of the commercial lease might not be the first priority of the business owner. However, it is important to note that the terms of the commercial lease agreement usually hold the business owner responsible for rent payments for the remainder of the lease. This can result in a large sum of money due unless the business owner can find an alternative resolution, because most commercial landlords have the means necessary to legally pursue an individual business owner for any financial damages that result from early lease termination.

The Importance of Communicating with the Landlord

The first step in successfully terminating a commercial lease is to open an avenue of communication with the landlord. Oftentimes, a landlord will be aware of a business’s struggles and some landlords might even be open to negotiating temporary reduced monthly payments or other flexible options to help the business owner stay afloat. If this is not a viable option, there are other actions a business owner can consider depending upon the actual language in the lease agreement. Oftentimes, the agreement will allow for the lease to be assigned with the permission of the landlord.

Finding an Alternative Tenant May Be the Easiest Option

Assigning a lease is basically finding an alternative tenant to take over the terms of the lease. Sometimes, a landlord might not want to readily accept this condition if it is not specifically addressed in the terms of the original lease agreement, but the prospect of lost revenue or a protracted legal dispute usually can guide a hesitant landlord toward considering a sublease to a new tenant. Many landlords will actually be very receptive to the idea of accepting a replacement tenant if it means they will have limited financial loss due to a business closure, and this is the quickest and least complicated method of legally terminating a commercial lease and limiting any future rent payments.

The Value of Downsizing

Another option for a struggling business is to negotiate for a smaller and less expensive commercial space if it is available. Many times, simply downsizing a business space can eliminate that extra overhead that is preventing a business from succeeding. If properly presented to a landlord, this option can be preferential to a landlord over the alternative of a business closing and filing for bankruptcy. Regardless of the situation a business is in, it is important to know that there are always options available and as long as the lines of communication are kept open, a solution can inevitably be found.