When you think you’ve found the ideal office, warehouse, retail unit, or restaurant space to start your business in, signing the commercial lease can’t happen soon enough. However, when things start to go wrong or your circumstances change, simply packing up your belongings and moving out doesn’t always end your financial obligations as a tenant.
Commercial leases are binding contracts and not always easy to get out of. But by seeking guidance from an experienced small business lawyer in Edmonton, you can find a legal, practical way to reduce your losses or exit the lease.
Here’s what you should know before trying to exit a commercial lease:
Begin by carefully reading the lease.
Often long and technical, not to mention chock full of seemingly harmless provisions, be sure to carefully review the following sections of a commercial lease before acting:
· Early termination rights, notice periods, default and break clauses, renewal options, and rules pertaining to the landlord’s consent
· Outstanding financial obligations such as base and additional rent, property taxes, operating and legal costs, utilities, and repair expenses
How a lease is worded can have a significant impact on the exit strategy available.
Negotiate a surrender agreement.
Negotiating a surrender agreement with the landlord is one of the cleanest ways to exit a commercial lease. This takes place when the landlord and tenant come to an agreement over terminating the lease before it is due to expire. Although the landlord is not required to accept this, they may do so, particularly when the proposal you come up with offers them a financial benefit.
Use an early termination or break clause.
Check your commercial lease to see if it contains a break clause allowing one or both parties to end the agreement before it is due to expire. It may be available after a certain period, upon payment of a predetermined amount, or following a specific event. Be warned that these clauses often come with conditions that are pretty strict.
Assign the lease to another business.
A useful option for businesses planning to relocate, sell their operations, or close one location while another company wants to move into the space is an assignment, which transfers the tenant’s interest in the lease to another party. That said, finding a replacement tenant may not mean that the original tenant is automatically released from the contract.
Sublease.
A sublease is when another business is allowed to occupy part or all of the premises, while the original tenant stays connected to the head lease. It is sometimes useful for a tenant who doesn’t want the whole property anymore but cannot get a full release.
Review whether there has been a landlord default.
In certain situations, you may find that under the terms of the lease, the landlord has failed to meet some of their important obligations. While not every inconvenience will give tenants the instant right to terminate the lease, with the right evidence preserved and the right professional advice sought, it may be possible to identify legal options.
Never abandon the premises.
Ending a commercial lease is typically not as easy as simply handing back the keys and moving out. Under these circumstances, the landlord may pursue any unpaid rent, repair costs, leasing commissions, legal fees, and other losses, and may also enforce a personal guarantee if one exists.
Put together a practical exit proposal.
A tenant is more likely to garner a favourable response from their landlord when a realistic and fair solution has been proposed to them. From promising to help find a replacement tenant to suggesting a repayment schedule, a carefully handled negotiation can help prevent a legal dispute.
Document the release.
If you’ve managed to negotiate an exit with guidance from Edmonton corporate lawyers that both parties are comfortable with, be sure to document it formally in a written agreement confirming whether all involved parties are released from future claims. It should also explain other details, such as who is responsible for repairs and whether fixtures must be removed.
Having a commercial lease professionally reviewed before signing, to ensure that your rights as a tenant are protected, can help you negotiate a swifter, more amicable exit should the time come for you to move out before the lease expires.