Approaches To Departure A Current Lease

A company or an individual may want to terminate their office lease before its expiration date. You might have outgrown the space or need to downsize.

Can one terminate a lease? The short answer to that question is no. The lease is an agreement to pay periodic rent for the exclusive use of space. These payments also include unamortized legal expenses, brokerage commissions, design and construction costs, and other landlords' debts. You can't just walk away from these debts. Sometimes, however, some strategies can help. For example, it would help to appoint a professional real estate advisor who will represent your interests while also identifying the landlord's needs to ensure that both parties reach a mutually beneficial solution.

Preemptive action is the best way to get out of your lease quickly. It is best to address it in the original lease agreement before it is signed. This can be assisted by a forward-thinking attorney and real estate advisor.

Termination Clause

This unilateral right is granted to the tenant and allows them to end the lease at any time provided certain conditions are met. For example, the clause might state that the tenant has the right to terminate the lease after 24th months with six months' written notice, a termination fee equaling unamortized leasing costs, and a three-month termination penalty.

Favorable Sublease Rights

This is often a tenant's best exit strategy. It is essential to ensure that the original lease contains tenant-friendly terms. You can prevent the landlord from "reasonably withholding their consent" by removing restrictions like not being able to sublease tenants who have previously toured the building. The landlord must give their consent, recapture, or disapproval within a brief time frame, for example, 14 days after tenant requests.

You should also ensure that the tenant has the right to deduct reasonable amounts from sublease proceeds (tenant improvement, brokerage commissions, and legal). Before sharing potential profits with the landlord,

If you find yourself in a situation where your lease must be terminated, and there are no provisions in the lease agreement for this, you have several options.

Purchase Out

Tenant and landlord agree to a dollar amount, which is usually less than the remaining lease obligation. However, it recognizes unamortized transaction cost and terminates the lease. This option is not the most expensive, but it is the easiest.

Sublease

The tenant finds a replacement tenant to replace the tenant for the duration of their existing lease. The landlord might prefer to sign a direct lease with the subtenant if the subtenant's financial stability is greater than that of the tenant. This is commonly called "recapture."

Landlord Default

The landlord may breach the lease, and the tenant can terminate the lease if they have any legal recourse.

Bankruptcy

Your landlord should be notified if your company goes out of business. Keep them informed about bankruptcy proceedings. A cash security deposit is not refundable. If a personal guarantee secured the lease, the entity or person could still be responsible for the remainder of the obligation.

Eviction proceedings and unlawful detainer are costly and ugly. Neither side wants to take that route. Although most landlords are willing and able to work with tenants, it is essential to have those conversations early. To reach a win-win agreement, both sides must respect their financial considerations and end goals.