Whether you are a commercial tenant or a commercial landlord, there might come a time in your commercial real estate investing where you want to break the commercial lease. Breaking your commercial lease can be an expensive deal and a time-consuming one, but it needn’t be so.
A commercial lease that is technically a contractual obligation in which both the parties agreed to certain terms and conditions requires both the parties to understand the consequences, costs, and the various options they have if either of the parties wants to break it.
Whether you are the lease-breaking party or on the other end of it – knowing how to break your commercial lease is important.
In this blog – we will walk you over the process of breaking a commercial lease and explain the possible consequences for both the breaking party and the other party, along with some of the best ways to break a commercial lease rendering a positive outcome for everyone in the process.
Read this comprehensive step-by-step guide to learn how to break a commercial lease.
#1 – Making sure that breaking your lease is worth it
There might be several reasons for a business owner or the landlord to want a lease termination. Some of these reasons could be too low or too high rent in the market, or wanting to downsize, or move into a bigger space, disputes between tenants and the landlord, or simply the inability to maintain the lease terms for the remainder of the lease.
Regardless of your reason, you need to understand that a commercial lease termination is indeed a serious business decision that must be considered carefully with fore vision. Along with breaking your lease comes many other obligations and costs associated with breaking a commercial lease.
In some cases, tenants might be obligated to pay steep fines, and landlords may face a slower rental market or high vacancy rate after the termination of the commercial lease. Thus, regardless of which side you are on, you need to make sure that breaking the commercial lease is worth it.
Additionally, you should be informed about the various consequences of breaking your lease and the various obligations you need to fulfill or pending payments you need to make before you break your commercial lease.
In this context, taking appropriate action to end a commercial real estate lease means finding the best possible terms that can save all parties involved time, money, and energy.
#2 – Have a prior conversation with your tenant or landlord
Before you go ahead and look into the legal aspects of breaking a commercial lease, you need to have an informal chat with your tenant or landlord about your intentions of breaking the commercial lease and understand the various facts and their perspectives about the same.
Being empathetic and understanding what your landlord or tenant thinks about the same is very important to have a smooth closure of your lease.
Having huge differences before moving ahead with the legalities of breaking your commercial lease can prove to be ineffective and can lengthen your process. In case of any difference of opinion – it is good to clear the air and have an open conversation.
This way, you are not throwing in a random surprise to your landlord or tenant, and thus you can move ahead with other aspects of breaking the Commercial lease without worrying about the other party’s response.
Besides, you must understand your rights and obligations prior lease termination to prepare for those in advance. Having an open conversation provides room for negotiation, which is always a good option and can provide the best outcome for both parties involved.
#3 – Use your lease contract as a basis
Referring to your lease contract is very important before you decide to break your commercial lease. Various legal obligations of both parties are laid out in the lease contract, and this can act as a guideline for you to draft an early lease termination plan.
While skimming through the contract – you need to look for any breach of contract that you may have committed or the other party may have committed, whether unknowingly or not. It is imperative to ensure that you have not committed any breach of contract.
In a case where you might find difficulty in understanding your obligations and that of the other party, it is best to hire or consult an attorney to see the legal implications of your lease contract, given your preferences and situation.
In some cases, tenants have the right to forfeit their security deposit on the early termination of the lease. Such terms and conditions are laid out as clauses in your lease agreement, and it is best to consult an attorney to clear any confusion.
#4 – Come to a mutual compromise or agreement
On having an open conversation with your tenant or landlord – if you find out that there is a tiff between you and the other party regarding the early breaking of your commercial lease, you can always assure the other party of a mutual compromise which you are willing to make.
For example, if you are a tenant who wants to break your commercial lease and move out as soon as possible, you can do so by assuring your landlord of finding another tenant before most of the space. This will lead to a peaceful settlement and provide business to the landlord and thus save you from paying huge penalties.
Similarly, suppose you are a landlord and want your tenant to move out as soon as possible. In that case, you can negotiate terms and offer any financial incentives to your tenants or simply waive off a month’s rent as compensation for the inconveniences caused due to the breaking of a commercial lease.
The importance of negotiating on agreeable terms cannot be stressed upon more. You can always come to some agreeable terms with the other party while having a conversation with them to have your path clear and don’t have any room for last-minute surprises for inconvenience is like huge penalties or a legal suit.
#5 – Sign a legally enforceable amendment agreement
Once both the parties have come to agreeable terms, you should sign an amendment that will waive off the least provisions or frame of mutual lease termination agreement outlining the exact terms of the early termination.
In this regard, it is always good to hire an attorney to ensure that this agreement would stand in a court of law.
If you fall under the rare case where you cannot reach an agreement with your tenant or landlord – you might want to involve an attorney to settle the dispute or take the case to court. Either way, it’s always best to hire a professional attorney who has experience dealing with commercial real estate leases.
The bottom line is that regardless of your situation or case, it is always suggested that you follow a legally binding process for the early termination of your lease. Do not think of adopting any escapism strategies like simply vacating the premises without any prior notice as it might lead to personal ramifications and serious legal consequences.
While it is true that breaking a commercial lease can be a very expensive and time-consuming one – it is best to follow the simple guide and ensure that you navigate the situation by causing minimal negative impacts to both parties involved.