Commercial real estate leases are often one of the more significant expenses for a company. Moreover, the terms can be lengthy. Companies often find that their needs change over the course of the lease: the space is too big or too small; the company may need to relocate to better address the customer needs, or there is some other reason.
Of course, the landlord and tenant signed a commercial lease agreement that defines the terms of the arrangement. These leases translate into thousands or millions of dollars in financial obligations and can give rise to significant issues. Some tenants may consider filing bankruptcy, walking away, or breaching the lease contract to shed the debt, but that can put the tenant company in turmoil and limit future prospects. If a guarantor or cosigner also signed the lease, they likely also want to avoid paying the rent or getting sued for breach of contract.
Finding a solution
While the tenant may be in a difficult spot, the landlord also runs a business and has a contract the tenant willingly signed. Open communication can facilitate a resolution as the two sides weigh options for equitably settling the matter.
- Renegotiate: The landlord and tenant discuss new terms, perhaps using a format outlined in the lease agreement.
- Assign the lease to others: Desirable space does not stay empty long if it is competitively priced. If the landlord approves the arrangement, the tenant may find their own replacement or someone to share the space. While the change may incur fees or short-term expenses, the leaseholder can cut years off their obligation or make it more affordable.
- Lease termination agreement: This legal document outlines the terms for ending the lease. This can also include additional payment or gradual release of obligation.
- Professional guidance is crucial
A knowledgeable and experienced commercial real estate attorney will be invaluable in resolving this complicated situation. They can protect their client’s financial and legal interests and offer creative solutions similar to those listed above but tailored to the parties’ specific needs.