Break commercial lease
Keep things professional and businesslike when discussing commercial leases, argues Wouter Jellema. Photo – Stock.
  • Emotional decision-making rarely helps, when breaking a commercial lease
  • Be prepared and business like, and show sympathy
  • Use a third party, and perhaps a property lawyer, if required

As a commercial property manager, I see many situations where business owners or managers feel forced to break the lease and property investors face an uncertain future.

These scenarios can come with emotional stress for all stakeholders involved. There are ways to take the emotions out of the negotiations and processes.

1) Keep businesslike and be well prepared

When a lessee wants to break the lease, a well-prepared lease document will detail the rights and obligations for the parties involved. Following the lease keeps it down to business and take emotions out of the equation.

When the lease does not itemise the responsibilities, the parties might need to negotiate the outcome from scratch, creating frustration and other emotions. So keep the situation focused on business issues and use an experienced solicitor to prepare the lease agreement.

The tenant, in their turn, should obtain legal advice before agreeing to enter into this lease. When all is agreed beforehand, it should be much smoother when a situation arises.

2) Be sympathetic

As the situation can be stressful for all parties, if the parties offer to be cooperative and possibly compromise for a better outcome, the whole experience could be better for all parties involved.

In one case, a business owner explained to me that they were highly affected by the Covid-19 pandemic and felt they had no choice but to break their lease, which still had nine months to run.

Rather than going through breaking the lease in this situation, the parties agreed to start advertising for a new tenant sooner. Then should a successful tenant be ready to take over the premises, the current tenant would surrender the remaining of the lease, and the new tenant could move in.

The outcomes would be the same, but the outgoing tenant could be released from their ongoing obligations. The lessor would have more chances of finding a new successful tenant to take over the premises, reducing the risk of an empty property. This scenario was possible because the parties understood what outcome would be desirable for all parties.

3) Use a middle person

Using a third, independent party with no emotional attachment to either the business or the property can help keep the emotion out of any transaction.

Often, this helps to avoid further legal expenses when the parties make emotional decisions. Property managers are usually not legally trained. However, an experienced property manager will have seen a few things, and they could share their experience with you to assist in making the right decision.

The property manager can help guide the process so that it becomes just another business transaction. The only legal fees required are preparing the documents needed and not for the support, negotiations, and work hours of property mitigation lawyers.

4) Use experienced property lawyers to resolve disputes

We often see situations where property investors contact the business owners directly, making the circumstances worse than they might have been.

Bear in mind that property investors have different objectives than the business owners or managers who lease the property, especially during a dispute. Using lawyers as an ultimate way of resolving any dispute might attract more fees, possibly the lessee’s responsibility.

However, it could result in a positive solution for all parties involved. Remember, the ultimate goal for everybody is to move on, whether it be with their business or getting their investment property back in good condition, ready to sell or lease it.

Finally, as each property, lease, and situation is unique, I recommend reviewing your case in detail and obtain independent advice before taking further action regarding your position.

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Before making any investment decisions, please do your own independent research, taking into account your own situation. This article does not purport to provide financial or investment advice. See our Terms of Use.

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