HOW TO GET OUT OF YOUR COMMERCIAL LEASE AGREEMENT…

February 8th, 2010

Ok, this is not intended to be some sneaky loophole for those less than moral business owners looking to stick it to the landlord or anyone else. This is an article intended to expose possibilities in the business end of a lease which may help you reduce or eliminate your lease obligation. As a broker and owner on both sides of the leasing fence, I understand what drives deals and what makes sense as options to terminate them.

If your business is in a situation which requires an untimely exit from your industrial or office lease (and has nothing to do with a landlord default), consider these options…in order.

- Talk to your neighbors, provided you have them. In a well occupied property there is a good chance the business occupying space adjacent to you either needs additional space or could take on another line or service to justify expansion. Ask your Landlord and/or its agent if they have any prospects for space in the building as you MAY consider giving up your lease space if they have a qualified tenant (Don’t appear desperate…yet).

- Look at your lease and tally your remaining monetary lease obligations for the balance of the lease term. Approach your owner and offer a cash buyout of the remaining term with some reasonable notice. Example…You have 24 months remaining on your term. Offer the Landlord 3 months’ rent penalty to leave in 90 days. You will most likely need a smaller alternative in which to relocate, so 90 days should give you enough time to locate your replacement. The rest comes down to what makes sense to your budget and to the landlord. If the Landlord has people on a waiting list and can relet the space in 30 days, your 3 months of penalty gives him a potential 2 month profit (provided the premises does not require tenant improvement money to make it ready for the new occupant). Your Landlord would rather have an opportunity to relet the space and lessen his downtime than have you leave in the middle of night after trying in vain to carry the rent.

- If your think your luck will change in the near term, ask the landlord for partial rental abatement to lighten your monthly load enough to allow your business to see the next upturn.

Other reasons it may it make sense for your landlord to replace you prior to your lease expiration?

· Possibility for increased rate and/or longer lease term for the landlord.

· Allowing an existing tenant in the property to expand and extend its lease thereby increasing the landlord’s net income and credibility of the rent roll.

· Replacing your business with two or more smaller tenants. This can help reduce landlord risk in the rent roll and make the tenant roll over more attractive.

- Contact a qualified commercial real estate broker and list your space with them for sublease. As you continue to run your business, your broker will market your space for sublease and hopefully land a tenant to replace you.

A few more tips:

· Try to terminate your guarantee (if applicable) if you and the Landlord finalize a sublease. If you must remain on the hook, work for a burn off of your guarantee as the new tenant stays out of default and makes timely rent payments.

· Always communicate with your landlord and be honest about the situation. If you are late on your rent and need out…let him know your issues and ask for assistance before things get out of hand.

My last advice and recommendation is to secure a qualified real estate attorney to review your lease. If you are successful in negotiating a termination, a well written termination agreement is a must.

Have more questions on the business end and want a broker’s opinion? Send me an email at Eric@WarehouseFinder.NET.

Categories: Houston Commercial Real Estate