To Break a Lease Or To Stay Put?
There can be many reasons why someone would want to break their current commercial lease. The thought of breaking it can make you cringe as you may lose money. However, the costs of keeping it may far outweigh the loss you may take by breaking it early.
So what are your options? Read on to learn more.
Maybe you have chosen to downsize your business or focus more on an online presence in this market. This shift may mean that you want to downsize your location and find something smaller and a better fit for your company’s future.
On the contrary, maybe you have outgrown your space and need more square footage to better serve your customer base or production needs.
Either way, you will have to consider all options before breaking your lease to determine which option is best for you. Wait until the lease is complete, or attempt to break it early so you can move on. The answer is likely not the same for each business, as each will have different goals and objectives.
Location is Everything
Maybe the leased space is in a neighborhood that has experienced an economic downturn recently and is projected to remain that way. Getting out of that area and moving closer to your customer base or a healthier neighborhood may be what you are choosing to do.
Maybe you and your family have moved since you signed the lease, and to make it easier for you to be present at your business more often, moving the company closer to your new home is best for you.
Automatic Lease Renewal
In many cases, commercial leases are on an automatic lease renewal schedule. This clause can mean that your lease will continue to renew each year. If you are on an auto-renewal schedule, you can attempt to work out a strategy with your landlord far in advance regarding your auto-renewal and that you want to switch things up.
If other tenants are seeking your space in an up-and-coming neighborhood, you may have an option to break your lease so the landlord can renew the lease with a new tenant at a higher price. In this case, everybody wins.
Furthermore, your lease may allow you to sublet your space, which means that you could find a reasonable tenant and sublet until your lease is up while you move into a new area.
What are the Legal Grounds for Breaking a Commercial Lease?
In some cases, a landlord can commit a “material breach,” at which time you can pursue this as legal grounds to break the lease early. An example of a “material breach” from a landlord may be that utilities or maintenance promised was insufficient. If this is occurring consistently and documented, you may have legal grounds to terminate your lease based on a breach by the landlord.
Some commercial leases come with a termination clause stipulating the options for legally breaking the lease early and what that entails. For some, it’s a lump sum payment or buyout option, which gives the landlord a financial cushion while finding a replacement tenant for the space. If a termination clause doesn’t exist, you may be able to amend the current lease to include this (or negotiate other options to terminate early) if you have a good working relationship with your current landlord.
As discussed above, you may be able to sublet the space or speak with the landlord and discuss your apparent desire for the space so the landlord can easily transition from you to a new tenant without financial distress.
Finally, one of the options that may work is to file for bankruptcy. This option is typically a last resort for most businesses, but if it means fewer financial implications for your business, it may be a great option for you. For example, if you choose to break your lease early due to your business closing, bankruptcy may be for you. If you decide to break your lease due to needing a larger space for your growing business, bankruptcy may not be the best option, as it will affect your credit for years to come.
How Can an Attorney Help Me?
Negotiations are pivotal in many situations, and breaking a lease early is an example of that. If you don’t have great negotiating skills or understand the legal options for breaking your lease early, having an experienced attorney negotiate your commercial lease options may be the best fit for you.
Furthermore, if there are signs of material breach from your landlord, you can work with an attorney to ensure these are documented and can depict legal grounds for breaking your lease.
If litigation needs to happen, your attorney can work with you to provide a reasonable strategy to ensure your lease exit doesn’t allow for financial distress within your business or minimizes the impact it can have.
Contact our office today at (303) 557-2011 to learn more about your options and how to get started. We offer free initial consultations so you can discuss your concerns and learn more about your legal options.