Breaking Your Lease

The lease you signed for your current space may no longer suit you. Maybe you need larger space if you're doing well. Or maybe you find an available location that is less costly than what you're obligated to pay under your current lease. Or perhaps you're going out of business and won't need your current space for the duration of the lease. If your company stops paying the rent, you personally are usually liable for the unpaid balance, as most small business owners are required to co-sign their company's leases. What can you do?

Check for escape clauses
A lease is a binding contract. However, the terms of your lease may allow you to walk away under certain conditions.
  • Early termination clause. This would let you off without any further obligation to the landlord for the balance of the rent. It usually can only be exercised after a certain period (e.g., one year) and requires some additional payment, such as rent for one or several months.
  • Co-tenancy clause.  If you have a store in a mall and the anchor store closes, you may be entitled to a rent cut or even to the cancellation of your lease.
  • Exclusive use clause. If you were assured in the lease that you would be the only tenant in the landlord's property to sell the type of products you do, then the landlord's leasing space to your competitor can be your way out. 
If you have a sublet or assignment clause, you are entitled to find a new tenant. This will get you off the financial hook of future rent payments (assuming you can find a business willing to pay your monthly rent). Depending on the commercial real estate market, you may only be able to find a tenant willing to pay part of your monthly rent check.
Negotiate with your landlord
Talk to your landlord to investigate possibilities that would make both of you satisfied:
  • The landlord may allow you to sublet even if the lease doesn't provide for it.
  • Your landlord may agree to let you out of the lease entirely. This may occur, for example, if the landlord thinks the space can be re-rented to a new tenant at a higher price.
  • Your landlord may allow you to cancel by paying some lump sum. This is called a buyout.
Even if the landlord isn't amendable to letting you, he or she has a legal obligation to mitigate your exposure if you want or need to leave. This means that the landlord must make reasonable efforts to re-let the space (e.g., advertise for a new tenant), after which time you would no longer owe any rent.
Bottom line
If your landlord has breached the lease, you may be able to get out of further rent payments. Always seek the advice of a real estate attorney before you do anything with regard to your current lease.

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