Early Termination of a Commercial Lease
If you want to terminate your commercial lease before your lease term expires, you may incur liability unless your lease contains an early termination break clause. Breaking a commercial lease is complicated and expensive. Negotiating a break clause that gives you the option for early termination at least once during the lease term is a smart idea. Generally, the break clause will state that the lease termination may only occur under certain circumstances and may include a fixed date or dates in the lease break provision.
Another way to terminate your lease is if you negotiate an assignment clause in your lease. An assignment clause lets you assign the lease to another tenant who takes over the lease. You may still be liable if the subtenant does not pay their rent, depending on what you and the landlord negotiated in your original lease.
The best thing to do is to review your lease before you decide you want to terminate it to make sure you can do so without any liability or penalties. If you have no legal right to terminate early under the lease, the landlord may seek damages against you. It is recommended that you seek legal advice to find out what your rights and obligations are under your commercial lease.
Talk to Your Landlord
Since most commercial leases specify under what terms you can terminate your lease, you need to make sure your reasons are acceptable so you don’t have to pay a penalty. You might want to talk to your landlord in a friendly way to find out your landlord’s views on you exiting your lease early. If you terminate before your lease expires, you could be liable for rent for the remaining term of your lease or until your landlord finds another tenant. Or you could also be liable if your landlord cannot find a tenant that is willing to pay the same rent and ends up paying a lower rent. You may owe your landlord the different between your rent and the new tenant’s rent. Once you know whether or not your landlord intends to cooperate with you, you can make alternate arrangements.
How to Avoid Liability Upon Early Termination
There are a few ways to avoid liability if you want to terminate your lease early such as:
- Always negotiate a break lease clause when you enter into a lease.
- Put a cap on the amount of money you are liable for if you exit early.
- Negotiate an assignment and sublet clause in case you want to exit early.
- Check your local laws. They may allow you terminate your commercial lease early if your landlord failed to disclose code violations, is in violation of health and safety laws or the property is not accessible.
- If the property needs repairs and you are not able to conduct your business or you lose revenues as result, you may be able to terminate your lease early without any liability or penalties if your landlord fails to make repairs within a reasonable time.
If your are going out of business or downsizing, your landlord may be more cooperative. You should try and work out a friendly solution first. If you cannot, then you will need to hire an attorney to help you negotiate your exit strategy.
Hire a Commercial Real Estate Attorney
If you are in a landlord tenant dispute over early lease termination or other issues, you should hire a commercial real estate attorney to help you negotiate a resolution with your landlord. The attorney is an expert at commercial landlord/ tenant laws, and can advise you of your legal rights and responsibilities.