Depending upon individual business circumstances, a company may need to leave its current location. They may be under financial constraints, have a bad landlord/leasing company, experience growth too quickly, and the space doesn’t accommodate, the property becomes untenantable, local economic conditions have deteriorated, or the business has shifted to primarily remote structures and is paying for space not being utilized.
Whatever the reason, companies sometimes need to get out of their leases. The hurdle is that breaking a commercial lease isn’t the easiest of processes. A company can’t simply find a new location, hand over the keys, schedule office moving services, and walk away.
Due to the legal nature of a commercial lease, it’s far more complicated since these agreements are binding. However, breaking a commercial lease isn’t impossible. If you need to figure out how to get out of a commercial lease with an early termination, it’s crucial to think about the following and explore options.
Penalties for Breaking a Commercial Lease
State law typically administers commercial real estate landlord and tenant matters. Chances are, if you stop paying rent and walk away from a lease, you’ll suffer penalties. Common penalties that typically accompany breaking a commercial lease include:
- Termination fees and any other fees as specified in the lease agreement
- Responsibility to pay the landlord for advertising costs to find another tenant
- Costs for any cleaning not done before vacating the property. Our final cleaning services can help you avoid these fees.
- Loss of security deposit
- Court fees if the landlord takes the tenant to court
- All or some of the rent owed on the remainder of the lease
- Difference between new tenant rate and your rate (e.g., the landlord leases the property for $500 less a month than your terms outlined – you might have to pay this amount to cover the landlord’s losses)
Knowing how to break a commercial lease the correct way will save on the costs associated with these and other penalties.
Potential Ways to Legally Break a Lease
Depending upon the terms of your lease and the circumstances surrounding why you need to vacate your current property, you may take a few different courses of action to break your lease legally.
Ask Your Landlord or Leasing Company if They’d Agree
If you currently lease a space in high demand, your landlord may happily be willing to surrender or break a lease if they think they can fetch a higher price each month from a new tenant. In this scenario, the landlord or leasing company obtains a better price and is happy to get another long-term lease at a higher rate, benefiting them in the event of a future economic decline.
Offer a Lease Buyout
Depending on your situation, it might be worthwhile to pay the landlord or leasing company a lump sum payment instead of continuing the lease. In fact, it may be cheaper than future rent owed. A lease buyout scenario is more likely to be agreed upon if the space is in a coveted location or can otherwise quickly attract a new tenant.
Sublet the Space
This isn’t possible in every situation, but depending on the lease details, you may be able to sublet your space to another company. The benefit is you can shift the responsibility of paying rent, but a major drawback is if the new tenant neglects to pay, you’re still legally on the hook to make those payments. Keep in mind the leasing agent must agree to sublet and then give approval to the tenant. Subleasing space cannot be done without permission unless the lease specifically states you are allowed to do this.
Negotiation of a Lease Termination
Companies can sometimes negotiate their way out of a lease early. Ideally, terms should be included in the lease, but many businesses don’t proactively consider they may need to leave their space before the long-term agreement is up. Some leasing agents are willing to compromise if economic conditions are good or if they’ve violated lease terms themselves that they could potentially be held accountable for.
If a company files for bankruptcy, this would likely end any obligation to pay the remaining rent on a commercial lease, but in many cases, it could be the wrong route to take. Having this stain on a company’s credit history can cause disruption and negatively impact their business in other ways. In some cases, if a guarantor exists, they could still be held liable for any lease obligations.
Speak to a Knowledgeable Attorney
Before you do anything, speak with an experienced commercial real estate attorney. Your lawyer can review your lease and see if any bailouts, clauses, or current circumstances exist that could empower you to break the lease.
For instance, depending on state laws, if the property becomes untenantable or a written agreement regarding early termination exists or can be created, an attorney can help identify any potential “outs” for the lease that could eliminate or reduce penalties for breaking the lease.
Your attorney can also advise you on any of the above options to determine if they’re in your best interest. Additionally, they can examine the current situation to see if there are any missteps or breaches made by the landlord/leasing company that can be used to negotiate or legally allow you to walk away from the lease.
READ MORE: Office Move Checklist: 12 Steps to Ace Your Office Relocation
If You Need to Vacate, Meyer’s Inc Can Help
Choosing whether to break a lease or leave a current location is challenging for any business. Working with a reliable workplace solutions provider can lessen some of your burdens if you find yourself in this situation.
At Meyer, we provide general moving services, facility decommissioning services, office renovations and technical support, along with providing final cleanings of your current property. We service commercial businesses in Connecticut, along with those located in Delaware, Maryland, Massachusetts, New Jersey, New York, Pennsylvania, and Rhode Island, and we’re happy to help assist you in your next move, no matter the complexity.
To learn more about our office moving services, call us at 1-800-727-5985 or contact our convenient online form to obtain a free, no-obligation quote.