How Do I Get Out Of My Commercial Real Estate Lease? Part 2
In the previous post, we discussed subleasing, assigning, desk-sharing and the option to cancel as some of the remedies a business might use to get out of a lease. In this post, we discuss the least desirable ways to get out of a lease: buyout and litigation.
The last option before going to court is to buy out the lease. If a business is paying way below market rent for its space, the landlord will be more likely to take the space back for nothing. If the tenant is paying substantially above market, the landlord will try to hold it to the lease. Once, when I was managing a property for a landlord, a Fortune 500 tenant wanted to get out of a 150,000 square foot lease. We determined the future rents and discounted to its present value. The tenant agreed. Six months later the tenant needed the space again and leased it back after having paid for it in full. Ouch! Buyout only if the other choice is litigation!
Last Resort: Landlord’s Breach of the Lease Agreement
One more way to get out of a lease is by citing violations of the lease that are caused by the landlord. This provides an opportunity to get out of the lease because it has been breached by the other party. This method is expensive, risky, and the outcome is uncertain.
For example: A new tenant leases space for an office on the lower level of a building. Above it, a retail space was leased to a gym. The patrons of the gym lifted very heavy weights and were in the habit of dropping them on the floor, the shock wave from which would reverberate through the offices below. The tenant could not function due to the startling noise. The landlord was concerned only with collecting rent and didn’t care what happened to the office tenant, so the tenant was in a good position to litigate the issue and attempt to get out of the lease in this manner. Not ideal and uncertain, but when all else has failed, lawyers can find creative ways to litigate with your landlord.
Finding a real estate broker who puts the tenant’s interest first is essential to any search for a new space. Without proper representation, the leverage goes to the landlord. With the proper representation, the leverage shifts toward the tenant and becomes more balanced. To learn more about which of these methods might apply to your situation, contact George Grace at (646) 312-6800 or email him here.
George E. Grace
Mohr Partners, Inc.
232 Madison Avenue
New York, NY 10016