Commercial leases give growing businesses and startup operations access to business facilities. Instead of scrambling for financing, the people running organizations simply need enough funds to cover deposits and monthly rent.
Typically, commercial leases persist for longer than residential leases. It is standard for a commercial lease to last between two and five years. Many businesses can fail before a commercial lease ends. There can then be questions about financial responsibility.
What are some of the options available when a commercial tenant needs to end their lease early?
1. Assigning the lease to another party
Sometimes, the terms of a lease allow for assignments. Lease assignment occurs when a business tenant arranges for another organization to take over the lease.
They absolve themselves of rent obligations by finding someone else to occupy the space for the duration of their lease. Those hoping to assign a lease often need to review their documents carefully, as commercial leases may contain clauses that prohibit lease assignments.
2. Invoking a force majeure clause
There are many circumstances outside of a business owner’s control that could force the closure of a business or a specific location.
Acts of war or terrorism, natural disasters and protracted supply chain disruptions are all examples of unusual scenarios that might lead to a tenant invoking a force majeure clause. It is possible to end a lease early in scenarios where circumstances outside of a company’s control prevent continued business operations.
3. Negotiating partial payment
Typically, commercial tenants are responsible for the remainder of their lease payments even in scenarios where they vacate the property prematurely. However, landlords who regain access to the property ahead of time may sometimes agree to cooperate with a tenant.
They may reduce their financial obligations, especially if the landlord can locate a new tenant. Direct negotiations between landlords and tenants can sometimes result in a mutually agreeable arrangement where the tenant covers a portion of the outstanding rent but not all of it.
Integrating the right terms into a commercial lease and reviewing the terms of the lease later on when issues arrive are both important steps for the protection of business tenants and landlords in an early termination scenario. Longer-lasting leases often require careful consideration in scenarios where business tenants do not intend to remain in the space.