How Do You Get Out of a Commercial Real Estate Lease?

how do i cancel my commercial leaseThere are many reasons why a company might want to get out of a commercial real estate lease.  Whether you have leased office, retail, or warehouse space there comes a time when you might need to terminate it before the lease expiration date.

  • Your company was acquired and they plan on consolidating offices
  • Your company has grown so quickly that you don’t have room to hire more employees however you have lease term remaining on your lease
  • You business is not doing well and you want to close the doors, however your lease does not expire for 2 years
  • You decide to purchase a building however you still have 3 years left on your lease

All of the above scenarios and others can cause the need to terminate your lease, however how can you do this?  It’s not easy however before you consider the options you might want to gather a little information to get you started.

  1. How much lease term remains?  If you have less than a year don’t expect the owner to let you out.  That gives him plenty of time to find a new tenant while you are still paying rent.
  2. What type of entity owns the building?  Some smaller investors may be more flexible then institutional REITs.
  3. What is your rental rate compared to what landlords are currently asking?  If your rate is below market you will have a great shot at subleasing quickly.  If it’s above market plan on coming out of pocket a bit.
  4. When you initially signed the lease what sublease and assignment terms did you ask for?  Most leases have a sublease clause however make sure you address this if you expect to grow sooner than later.
  5. If you are expanding and moving to a larger building what will the monthly rent amount be?  It’s possible that your new landlord may be willing to give you some free rent to help offset your other lease obligation as an incentive to get you in their building.
  6. How long do you think it will take to sublease your existing space?  A good commercial realtor can help answer this for you.
  7. Can a portion of your company stay in your current space for the remaining lease term?
  8. Have you checked to see if any other tenants in your building need more space?

Here are some options for getting out of a commercial real estate lease

Negotiate a buyout with the landlord.  Not all landlords will be open to this however it never hurts to ask.  Depending on market trends (up or down) the landlords response will vary.  If they are open to the idea they will typically consider a number of factors including how long it would take to release the space, tenant improvement costs, commissions, market rents, etc..

Sublease the space.  You can either try to find a tenant to sublease or hire a commercial real estate company to do it for you.  Good places to market your space would be on craigslist, loopnet, etc.  If you have less than 1 year remaining on your lease it becomes less marketable so make sure you decide sooner than later.

Stop paying rent.  I would not suggest doing this however it is an alternative.  If you have an entity that you could dissolve and it did not effect you personally or financially then it’s possible.  Again, I don’t suggest this.

If you are currently leasing commercial office, retail or warehouse space and you need help getting out of the contract feel free to contact us for help.  You can reach us at 512-861-0525

 

 

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