How to draw up a lease
Q: I have a store in a small shopping center. One of the more popular stores recently left. The new tenant is very different and brings in a different sort of customer. I would like to get out of my lease (it runs for another year). Can I, and if so, how? — Debra
A: Breaking a commercial lease is not the easiest thing in the world, but paradoxically, it also may not be as hard as it sounds. What I mean is that it really depends upon the facts of the situation; certain facts make getting out of the lease easier.
Here then are my best strategies for getting out of a business lease before it's over, ranked from the easiest to the more difficult:
Look for a clause: Re-read your lease and look for either a bailout clause or a co-tenancy clause. A bailout clause allows you to get out of the lease if your sales do not reach a pre-set level. A co-tenancy clause lets you leave if an important anchor tenant leaves, which may be the case here.
Ask: If you are in a good space in a popular area, your landlord will be more inclined to an early termination of the lease than if you are in a bad space in a hard-to-rent location.
Let's say that you are in a nice spot that is not hard to rent and you have two years left on your lease. Landlords may be amenable to your request to end your lease early because they could probably rent it for longer for more money.
As my grandmother was wont to say, it never hurts to ask.
Have a legitimate reason: The general legal rule is: You can cancel your obligations under a lease if the other side breaches a substantive lease provision first (note that word "substantive"). You cannot get out if the carpet was not cleaned this year, but you could if the roof partially caved in and the landlord failed to repair it.
So if there is legitimately a substantive breach on the landlord's part, that may be reason for you to cancel the remainder of your lease and walk away.
Of course, if it is debatable, the landlord will likely sue you, so be careful.
Assign or sublease the space: An assignment is when you transfer 100% of your obligations under a lease to a new party. With a sub-lease, someone else will come in, take over the space and pay the rent, but you remain legally liable for it if they
So another option would be to try and rent out the place to someone else. An assignment of course is preferable.
Note that almost all commercial leases give the landlord the right to approve or disapprove of any possible new tenants under an assignment or sub-lease.
Offer a lump-sum payment: Let's say you have a year left at $1,000 a month. A leasing company might be willing to take less if it thinks it could lease it again fairly quickly. In that case, an offer of say, $5,000 might work. Hey, it's less than $12,000, right?
Leave: It starts to be more of a hardball game now. Another thing you could do is simply leave the space. In that case, you will have, of course, breached your lease and you will be obligated to pay more.
But how much more? That's the rub. The landlord has an obligation to try and re-rent the premises as quickly as feasible and thereby mitigate its damages.
If they are able to rent the place fairly quickly, say a few months, then all you would owe would be the cost to clean the place up and the lost rent for those few months. But if it is longer, you will be obligated for as long as it takes, until your lease runs out.
File bankruptcy: A bankruptcy would likely end your obligations under a commercial lease, though a lawyer would need to be consulted to be sure.
Indeed, for any of these remedies, a lawyer should be consulted to discuss your facts and the law in your state.
Today's tip: Listening to a story about small businesses in New Orleans recently, I was surprised to hear one owner state that her busy season begins after Mardi Gras. Why? Because Mardi Gras is simply one event of many that occur in the spring in New Orleans. After Mardi Gras there are jazz festivals, parades, literary festivals, wine and food expos, etc.
The takeaway is that, if you want to bring more people to your store, consider teaming up with nearby businesses and create some events of your own to draw people to your area. It works.
Ask an Expert appears Mondays. You can e-mail Steve Strauss at: email@example.com. And you can click here to see previous columns. Steven D. Strauss is a lawyer, author and speaker who specializes in small business and entrepreneurship. His latest book is The Small Business Bible. You can sign up for his free newsletter, "Small Business Success Secrets!" at his website —www.mrallbiz.com .Source: usatoday30.usatoday.com