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Can you break your commercial lease?

On Behalf of | Dec 5, 2023 | Commercial Real Estate

Leasing a commercial space can be a significant commitment, but evolving circumstances may require a location change. Whether it is time to expand, downsize or relocate, or there are other reasons your current site is no longer suitable, it might be time to break your lease.

Understanding your options helps you navigate the process without unnecessary complications.

Review your contract

Before taking any steps, thoroughly review your lease agreement for stipulations regarding termination and breaking the contract. Pay close attention to the specified notice period, penalties and any conditions that might allow for termination without severe consequences.

Some commercial leases include an early termination clause, outlining conditions under which you can end the lease before the agreed-upon term. Examine this section to determine if your situation aligns with any criteria mentioned. If so, it could provide a straightforward path to breaking the lease.

Consider subleasing or lease assignment

Check your contract for options like subleasing or assigning/transferring the lease to another business. In some cases, you can find a replacement, subject to the landlord’s approval.

With this option, you can exit the lease while protecting the landlord’s interest and honoring the contract. Note, however, that sublease availability has risen from 13% availability in 2020 to 19% in 2023, making it more difficult to quickly find new tenants.

Negotiate with your landlord

Communication is key. If circumstances arise, such as financial challenges or a need to relocate for business reasons, open a dialogue with the landlord. In some cases, he or she may be willing to negotiate a mutually beneficial solution. Being transparent about the situation and exploring potential compromises can pave the way for a smoother exit.

While ending or altering your existing commercial lease may seem like the simplest way to meet business needs, be sure to understand your obligations and options before making a final decision.