Premature Termination of a Commercial Lease — What are Your Best Options?

Posted on: 23 June 2020

Leases exist for the good of all the parties involved in a transaction. A lease lays down the framework of operation and the terms and conditions that all parties must observe in the course of the engagement. There are several types of leases. A retail lease is an example of a lease with multiple protection clauses because the knowledge of legal engagement is not readily available to everyone. On the other hand, a commercial lease sets out the legal framework for leasing a commercial property to serve a specific business purpose. Examples include leases for commercial office space and industrial sites. Here is the information you need regarding the premature termination of a commercial lease:

The Legal Consequence

Commercial leases between you and the property owner will run through a specific period before you can terminate or renew them. Essentially, this means that you cannot terminate the lease before the end of that period. It is also common to find lock periods within the lease agreement, which means that you can only consider moving out of the premises after the lapse of this lock period. Usually, this period will be a couple of months.

The risk of walking out of a commercial lease exposes you to hefty fines, court injunctions, penalties, interests or rental payments that you cannot reclaim. You can mitigate or avoid all these by doing the following:

Negotiating with the property owner – When the lease doesn't make any more business sense for you, your first line of action should be letting the landlord know. Approach the proprietor and let them know that you want to terminate the lease by mutual agreement regardless of the current provisions. It is better than issuing a termination upfront. The proprietor might prove to be difficult, but you stand a chance of reducing some of the obligations arising out of the termination.

Buy-out – You should also consider buying yourself out of the lease. This involves paying some consideration for your failure to live up to all the terms of your commercial lease. For instance, if you have one year left before the lease expires, you can pay an agreeable percentage of your rental obligations for this forthcoming period. Most proprietors would agree to this because they still have an option to lease the space after your unprecedented departure.

Find a replacement tenant – You can also seek a waiver of the obligations arising out of your termination by offering an alternative tenant to the proprietor. This is often legally acceptable and practical considering you will be leaving the proprietor in a good financial position.