How to get out of a commercial lease?
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How to get out of a commercial lease?
My business isn't doing very well and I have signed on to a commercial lease that still has 2 more years.
I need to get out of it however possible.
Is this something you can help me with?
Hello!
My name is Dolan and thank you so much for contacting me!
I just had a few quick questions for you:
Have you spoken to the landlord about breaking your lease?
Do you have any idea if anyone could take over your space?
Hey, thanks for getting back to me. We have not spoken to the landlord yet. Should we?
We haven't even started thinking about anyone that could take over our space. Is that an option to consider?
Ok thanks! Just a few more questions. What is the nature of the property that you rent? Meaning, what kind of commercial business do you do?
I have a retail shop that sells a bunch of different things - clothes, candles, shoes, etc.
Understood! So you're just wondering what you need to do here, correct?
It is our only location and we just aren't doing well enough and are going to shut it down.
Just want to understand options.
I have the lease open in front of me and I don't know how to interpret the language.
Customer:
In case this helps, I just saw this in the lease:
8. Assignment and Subletting
8.1 Tenant may not assign this Agreement or sublease any part of the Premises without Landlord’s prior written consent, which shall not be unreasonably withheld.
8.2 Any approved assignee or subtenant shall agree in writing to be bound by all terms and conditions of this Agreement. Tenant shall remain liable for all obligations under this Agreement in the event of an assignment or sublease.
But that's about it from my end.
Ok! I've been working on an answer while we've been chatting, so it'll just be a moment.
So the downside here is that you're still bound to the lease. You're bound from the moment that you agree to rent the premises. This means that unless the landlord lets you out of it, you can't get out of it.
There is a silver lining:
- You could see if you can find a subtenant to rent it from you. The lease agreement said it needs the landlord's written consent, but that means that you aren't going to be limited from requesting that consent.
- You can try to find someone to take over the lease agreement for you with the landlord's consent;
- You could offer a settlement to the landlord, such as 1.5x the regular rent.
If you can't do either of those, then there is still some hope. Under the law, when a tenant breaks their lease there is an initial obligation or debt that is owed by the tenant to the landlord for any unpaid rent for the remainder of the lease. However, before the owner may make a claim for such damages, s/he has a duty to mitigate (lessen) damages by making a good faith effort to re-rent the unit as soon as possible to try to cover any potential loss resulting from the lease breaking.
In other words, before a landlord can recover in court for the remainder of the lease, the landlord must make all reasonable efforts to find a new tenant to replace the old one. So what I recommend is considering which of these options work best. In most cases, letting your landlord just keep your deposit or letting your landlord find a replacement are the best options.
Does that help clarify things? I want to make sure I didn’t leave anything out.
Yes that helps.
I'm very sorry about that!
I want to ensure you feel completely satisfied with our conversation.
Were there any details I missed?
Did you have any concerns about this issue that still need to be addressed?
I'm happy to help.
So I could ask the landlord if we could find a replacement tenant?
Would you recommend we disclose our financial position as part of the messaging?
Yes and yes. The landlord doesn't want someone in who is unable to pay the rent and landlords hate surprises, so if you are able to offer them a way out of this sooner than later, it's wise!
OK. How would you recommend we go about telling the landlord?
We also have inventory we may be doing a liquidation sale on so may be able to recoup some cash as well. Would he have a right to that as collateral or anything like that?
Sure thing! So you can send this in any way you want. It can be text, email, certified mail, or in person. I would suggest to them that you have had some difficult financial times, that you want to cooperate but you are having trouble believing that you can pay the rent, and that you want to find a replacement tenant or subtenant for you.
Also, I think that you need to inventory all of your assets on the property and be prepared to tell the landlord what can be sold, what can be trashed, and what can stay or what you could even give to the landlord in this case.
OK makes sense.
For sure! Were there any details I missed? Were there any concerns you still needed to be addressed?
Is there anything this landlord can do to me personally?
The lease was signed by our business, not me, so I am assuming that's good.
Worst case? If you stay, the landlord would have a right to evict and would have a right (in most states) to enter the property and lock you out if you are late on the rent.
You are only personally liable if you guaranteed the rent payment. Depending on the length of the document, we can review it for $375-$400 to let you know the full extent of your liabilities.
OK. Let me think about it.
Mind explaining the 'settlement' option? You said I pay 1.5x lease? How long would that be for? I am assuming that means I wouldn't be responsible for finding a tenant?
Sure thing! So you can take what your regular monthly rent is for now and multiply it by 1.5. Consider offering THAT along with your regular monthly rent to the landlord in exchange for exiting the lease agreement. This will buy the landlord several months to find a new tenant.
I pay $2,200/month now. So you're saying I would offer to pay him $2,200 + $3,300 = $5,500?
In exchange for exiting the lease agreement?
I may be interested in this too since we may be able to cover that if we liquidate our inventory.
Yes, you got it! Just make sure that any offers or acceptances you make are in writing.
Sometimes, selling off inventory and closing any accounts receivable can definitely help close the financial gap to make your offer a reality.
OK that makes sense and I will need to think about it.
Finding a replacement seems like a decent option, I just don't know if I will be able to do that and may just want to exit.
Can I keep this chat open with you?
Also - would you be able to proofread an email I draft to send to landlord?
I'm not sure what I will do yet but will speak to my partner about the options and will come back to you on it.
Thanks for the help.
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