A commercial lease often requires a multi-year commitment. Unlike residential leases that may last for a single month or a year, commercial leases often last for multiple years, sometimes as long as a decade.
A business tenant leasing a space will be responsible for paying that rent even if the company fails or needs to expand into a different space because the original least space is no longer sufficient for its needs. Being responsible for several years of rent at a commercial property can be a major drain on a business’s finances and can put an entrepreneur at risk of financial hardship. Both of the tactics below can help commercial tenants potentially reduce their financial culpability if they opt to terminate a lease early.
Adding the right clauses to the lease in the first place
The best time for a tenant to protect themselves from future financial obligations is when negotiating the lease. It may be possible to convince a landlord to reduce the duration of the lease during the initial negotiations in some circumstances.
Even if the lease period is not negotiable, other contractual provisions could potentially protect the tenant from lawsuits over unpaid rent. A force majeure clause, for example, would give a tenant the right to break the lease without penalty in scenarios beyond their control that force them to close the business. Natural disasters and supply chain disruptions are examples of circumstances that may trigger force majeure clauses.
Assigning the lease to a new tenant
When a business files for bankruptcy with multiple months left on its lease, finding another party to take over that lease is often one of the best options. Landlords may also allow someone to end their financial obligation for a lease as soon as they locate a new tenant to take over the space. That type of arrangement can take some of the marketing pressure off of the landlord while ensuring that they will have a steady stream of rental revenue. Even if the business doesn’t intend to file for bankruptcy, it may be possible to have a new tenant assume the remainder of the commercial lease to absolve the current tenant of responsibility to the landlord.
Directly discussing the matter with the landlord and trying to negotiate an amicable arrangement could help a commercial tenant limit the long-term financial challenges they may face if they need to end a lease arrangement for a property early.