How To Terminate A Lease And Get Your Money Back: A Guide For Commercial Tenants
Are you a tenant trying to terminate your lease?
The language used in a commercial lease helps in determining what the procedures are for terminating that contract. As per the terms stated in a commercial lease, the tenant is typically allowed to occupy a certain commercial space for a limited time frame. This time frame is stated in the agreement. Until the date of lease expiration, a business can continue to enjoy their commercial lease. Both the tenant and the landlord are expected to adhere to the terms set by the agreements during the term of the lease.
However, a commercial lease could also contain a clause that permits the tenant to terminate the lease before the end of their term. The clause is known as a "break clause". A commercial lease review can help you determine whether your lease comes with such a clause or not. If your lease does not contain a "break clause" there may still be other options you have to terminate your lease.
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Termination of Leases
There are a few ways that a commercial lease could be terminated. These include:
1. Break Clause
This is one of the most common ways for a business to end their commercial lease. However, for it to be applicable, the break clause should be in the commercial lease agreement before it is signed. Should a break clause be present in your commercial lease, then this means that the lease can be terminated without you needing to pay the remaining balance as stated in the rent agreement.
Sometimes, the early termination clause is also known as a break clause. However, there are certain conditions that need to be met before a commercial tenant can exercise their right to end their contract. As the tenant, you will need to provide notice in a timely manner to your landlord. This formally lets the landlord know of your intention to terminate the contract.
Usually, break clauses end up stimulating that the tenant has the right to terminate their contract early, should it happen within a certain time frame. An example of this is a commercial lease agreement that comes with a break clause stating that early termination can only happen within the first year of the lease commencement.
2. Termination Agreement
There are various reasons behind why a business owner may choose to end their commercial lease. It could be due to sales losses, bankruptcy, property deterioration, as well as changes in the business structure. At any time, after the lease agreement has commenced, the landlord as well as the tenant will need to agree to terminate the lease contract. This should be before the expiration of the term in the lease.
The termination agreement should state that both the landlord and tenant have decided mutually that they would like to end the lease. As a result, the tenant would relinquish the property, and the landlord would also agree to release the tenant from further obligations pertaining to the contract. However, you should note that the landlord could preserve the right to sue the tenant for damages as a result of early termination. The landlord could also charge a fee for the same.
3. Landlord Termination
The landlord can choose to terminate a lease contract, but this is only under specific circumstances. An example of this would be the building being damaged beyond repair by fire, flood or other act of God. In such cases, the contract comes with a clause that indicates the landlord can terminate the lease unilaterally, without the approval of the tenant. Sometimes, they will provide the tenant with certain monetary compensation, but not always. Should the tenant end up defaulting on the terms of the lease, this also typically allows for the landlord to terminate the contract.
4. Lease Assignment
While technically not a termination, a lease assignment is an effective way to "get out from under" a lease you no longer wish to be in. It's not possible for a commercial tenant to avoid paying their lease obligations unless the lease agreement terms allows the assignment of leases. In these cases, the tenant can transfer their rights to a new tenant by assigning them the lease. However, even in this case, it will be the original tenant who will remain liable when it comes to the lease agreement. They will also be liable should the new tenant end up defaulting on their rent obligations.
Both tenant obligations and landlord obligations must be considered when it comes to ending commercial leases. Hiring a lawyer to help you end your lease could seek like a good idea. In which case you could be wondering how much do lawyers charge to review a commercial lease? Their rates can be expensive. Which is why you should consider working with us. We provide a flat fee commercial lease review, that helps you understand the terms of your commercial lease.
How Do I Know If My Commercial Lease Qualifies For Money Back As A Tenant?
Even if you're a great tenant, there could be circumstances where you find the
landlord asking you to end your lease. In this case, are you eligible for a termination fee refund as a tenant? If your landlord doesn't provide you with a valid reason related to terminating your lease, then you may not have to pay a termination fee at all.
There are landlords who could also choose to evict their tenants for reasons that are illegal. In any of these cases, not only could a tenant expect to receive back any deposits, but may also be entitled to other compensation from the landlord. The easiest way to be sure if you qualify for money back as a tenant is to have an expert review your lease.
What Are Some Consequences If I Choose To Terminate My Commercial Lease Early?
There are commercial leases that don't come with any right for the tenant to terminate early. Should the tenant decide to terminate the lease early, then the landlord can ask the tenant to pay all their rent obligations immediately. Occasionally, some landlords will negotiate to receive only rent amounts for a period of three to six months. Lease up costs that aren't amortized are also most likely required to be paid back.
Keep the following in mind! When you sign a long-term lease for more than a year, the landlord is expecting to recover their transactions costs. This includes broker fees and any up-front tenant improvements. Now, should you choose to end your lease early, you could need to pay the remainder of the costs you would otherwise have paid, when terminating your agreement.
There are, however, commercial lease agreements which have clauses that allow tenants to end their lease early without incurring penalties. These clauses are known as:
- The Bailout Clause: This allows retail tenants to end their lease should their sales drop below a certain point.
- The Co-Tenancy Clause: This allows commercial tenants to end their lease should their anchor tenant leave them. This also applies when occupancy ends up dropping below an agreed level.
There are also certain conditions where you could end your commercial lease without incurring a penalty. These include:
- Should your space be in an area that is popular, the landlord could agree to early termination. This is because the landlord may be able to lease that space, but at a higher rate.
- If the landlord has breached a lease provision puts them in default.
- Should your business have claimed bankruptcy.
- Both you and the landlord agree to a deed of surrender. This ends up releasing you from your tenant obligations.
- You choose to assign your lease to another entity, with the help of a permitted transfer.
Conclusion and Ways To Protect Yourself As A Tenant
Should you want to pursue the early termination of your commercial lease, it's typical to consider hiring the help of a lawyer. However, you could be wondering if there's a first step to take before engaging an attorney. A lawyer's service can usually be very expensive. A cheaper and faster solution to your problem may be to work with us.
We provide a flat fee commercial lease review. A Level On Demand expert will look at your commercial lease and let you know if and how you may be able to end your lease early.