Whether starting a business and signing a new commercial lease, or moving, closing, or selling an existing business, understanding when it is permissible—and not permissible—to break a commercial lease can save valuable time and money. Entrepreneurs must understand several vital aspects of a commercial lease.
Part of being a smart business owner is finding a physical location that will provide high visibility and walk in traffic from nearby stores or businesses that appeal to the same target demographic. Retail developers are encouraging businesses to lease their properties by designing more intimate, walkable shopping centers. Business owners must realize a commercial lease is very different from a residential lease. A person renting a home may only have to worry about losing a security deposit or a small penalty fine for breaking a residential lease; however, breaking a commercial lease is a much more serious matter with significant consequences that can affect the future of the business.
Many business owners need to end their commercial leases before the term is over and have good reasons to request an early release. The business may have outgrown the leased space, had a significant decrease in customers, or need to close its doors and go out of business. Before attempting to break a commercial lease, business owners must review the terms of their lease to understand each party’s obligations. Generally, the tenant in a commercial lease can only terminate the contract before the term expires without liability if a specific provision in the lease allows for early termination.
If the business is in a highly desired physical location, the property’s landlord may be willing to consider an early termination of the lease. Business owners can attempt to negotiate with the landlord to terminate the lease early by offering a lump-sum payment to end the lease. Other options for the tenant to research regarding early termination include:
If these options fail and the business owner still needs to break the lease, the owner should always provide written notice to the landlord stating the intention to break the lease at an earlier date than expected. The landlord may want to forgo legal action reach an agreement on remaining rent. If an owner cannot compromise with the landlord, the business, and possibly the owner, may be held liable for all unpaid rent. When the landlord refuses to to negotiate or threatens litigation, it is time to seek a knowledgeable business attorney.
Commercial leases are typically treated as a contract by the courts, and unless there is a provision in the lease to the contrary, usual contract principles apply. The terms specifically included in the lease will dictate how that lease is interpreted and enforced. If a long-term commercial lease is broken or “breached,” the business owner should expect that contract dispute to be litigated. When a commercial landlord claims a breach of contract has occurred, they will need to prove:
The business owner often has a defense to enforcement, or a good reason for why the owner’s liability should be limited. There may be misrepresentations by the landlord, or problems created by poor maintenance or property upkeep, that justify the termination. At this point, any tenant or business owner needs a business real estate attorney present to guide the tenant through the legal process.
For Houston business owners, rental costs can be a significant financial burden. While some landlords attempt to work with tenants unable to make rent payments, others may refuse to negotiate. Through lease negotiations facilitated by an experienced real estate lawyer, Texas business owners can navigate the complicated world of commercial leasing and be prepared for unexpected situations. If you or someone you know has questions about lease negotiation options, contact the Houston real estate lawyers at Burford Perry LLP today to learn more about how we can help.