Question: I can’t afford the commercial lease for my office. What should I do?
Answer: Many business owners are faced with the difficult issue of wanting to break their commercial lease, for any of a host of reasons. And with the increased use by landlords of personal guaranties, breaking a commercial lease can be an expensive and difficult proposition. But there are strategies.
The first thing you should do is consult your lease agreement (the “Agreement”). That document is what controls what the tenant and landlord may and may not do. So, as the tenant who wants out of the commercial lease, try to find in the Agreement what you can do. Are you able to sublet? What are the penalties for a breach of the Agreement? Read the Agreement carefully to find out what you may be able to do. We’ve had clients who, when we went back, found that the landlord had breached, the breach had not been waived, and our client the tenant had some leverage. Read the Agreement!
Second, consider some legal protections you may have. One of the most important is the landlord’s duty to mitigate. Arizona law states that, “In a commercial lease transaction if the tenant abandons the premises, the landlord is under a duty to make reasonable efforts to rent it at a fair rental.” Lee Development Co. v. Papp, 1990. This means that even if you break the lease, the landlord’s damages will be limited to the amount you owe until someone else takes the space.
So with that being the case, it is often advisable to negotiate with the landlord. Of course, you must be wary of a possible case by the landlord for anticipatory breach, but negotiating an exit strategy may be possible.
We have provided this service for clients many times over the years. Call us anytime to explore breaking a commercial lease in a manner as least damaging to your bottom line as possible.