How to Break a Commercial Lease When You Go Out of Business
On the hook for a commercial lease? Renting commercial space has probably been a big expense for your business. So when you go out of business, it makes sense that it's a big liability — one you want to take care of. Your options for getting out of that lease depend on whether are committed to a lease for a certain period of time or you're a month-to-month tenant.
Ending a Commercial Lease
If you have a long-term lease, you will be liable for any rent payments for the remainder of the lease. This could be a lot of money, and many commercial landlords have the financial wherewithal to sue over broken leases.
Depending on your state's law, however, your landlord may have a legal duty to reduce (mitigate) his losses by looking for a new tenant. That's something you might be able to help with, by publicizing the available space, to lessen the chance that you'll be liable for paying those remaining months. If the landlord can rerent the place for the same amount (or more) than you pay, you are off the hook for the remainder of the rent. However, the landlord can charge you for the time the space was vacant, plus the costs of rerenting the place.
If the landlord is not able to rerent the place with reasonable effort, you will be on the hook for the rent for the remainder of the lease. In this case, you might be able to negotiate a lease termination in exchange for paying several months' rent up-front. Your landlord will probably be happy to arrive at a negotiated solution rather than having to chase you down for the money or risk that you'll file for bankruptcy.
Terminating a Month-to-Month Commercial Tenancy
If you've been renting month to month, give your landlord written notice to that you're terminating your agreement. You'll probably have to give 30 days' notice, but some commercial leases require 60 to 90 days. Check your agreement.If you paid a security deposit, ask your landlord to inspect the premises with you well before you vacate, so that you can deal with all issues and possible misunderstandings that could keep you from getting your whole deposit back promptly. (Whether you'll keep it or apply it to rent owed.) Especially if you have rented premises for some time, you shouldn't be charged for normal wear and tear—for example, if, after several years, the walls need repainting or the carpet should be replaced.
Prepare an inspection checklist. It can be a good idea to prepare a one-page list of the premises' main features—walls, floors, windows, and so on. As part of your walk-through with the landlord, ask the landlord to check off all features that are in good shape before signing the form. Nolo offers a downloadable form, the Landlord-Tenant Checklist, available on nolo.com.
Getting Legal Help
If your landlord refuses to take a small settlement, or there is a lot of money at stake because you have months or years left on your lease, involve a business lawyer. The lawyer should be able to negotiate a deal more easily with the landlord. Connect with a business lawyer through Nolo.