If you are a business owner, then you are fully aware that most industries can be very unpredictable. This is especially true when there is a worldwide pandemic! Many business owners find themselves wondering if they can terminate their commercial lease early. Because your lease is a binding contract, you cannot simply turn the keys into your landlord and say you’re done. Below are several options to consider if you are thinking of ending your commercial lease early:
● Request to surrender the lease. When a tenant surrenders the lease, it means that both the tenant and the landlord agree to terminate the contract. Your landlord has no legal duty to agree to your surrender of the lease, but you may be able to negotiate it with them. It is possible your landlord will let you out of your lease in exchange for a surrender fee to cover the loss your landlord will have due to your surrender. If you and your landlord reach an agreement to terminate the lease, it is imperative that you document it in writing.
● Implement early termination provision. If your commercial lease contains an early termination clause, also known as a “break clause,” you can follow the terms set forth therein. For example, the lease may allow early termination after five years into the lease term or if you move into another space owned by the landlord. If available in your commercial lease, implementing the break clause can save you money.
● Assign the lease to a third-party. If your lease allows it, or you obtain permission from your landlord, transferring your commercial lease to another party can transfer your obligations under it. Your landlord will likely require the third-party to meet certain conditions, such as evidence of financial stability and/or a personal guarantee from the business owner. Again, you will need to document the assignment of the lease in writing that is signed by you, your landlord and the new tenant. Be aware that in most assignments of leases (unless negotiated otherwise), you remain liable for the actions of the new tenant. In other words, if the new tenant breaches the commercial lease, the landlord may be able to seek redress from you.
● Subletting. You may have the option to sublet all or a portion of the premises to another party. If you wish to remain in business, but also need to reduce your costs, subletting a portion of the leased space to another party may be the answer. Again, your landlord must agree to you subletting the space and you will remain liable under the lease, but it is a means for reducing your expenses. Be sure to include a provision in the sublease that requires the subtenant to compensate you if their breach causes you to breach the original lease.
If you have signed a commercial lease and you are considering options for terminating it early, let the experienced attorneys at Mailly Law assist you. We are experienced in a wide variety of business matters and we stand ready to fight for you.