Breaking a Commercial Lease: Everything You Need to Know

Commercial Lease Disputes

Breaking or terminating a commercial lease can be complicated. Our attorneys can help ensure the process is as smooth as possible.

Why do commercial leases need to be broken?

There are a variety of reasons that lead to commercial lease termination.

Tenants sometimes find that their companies simply are not generating the revenue necessary to stay in business, or perhaps they come to realize that the rental location is not beneficial to their business. Sometimes tenants find that their leases misrepresent certain elements and believe that the landlord is to blame or that their rent is exorbitant for the market.

More recently, global health issues in the form of the COVID-19 pandemic led to many businesses shuttering. While some are reopening and gaining their feet, others were unable to survive the lockdown and will be closed permanently. This, as well as the above, lead some tenants to seek to break their lease.

Landlords also sometimes attempt to end a lease early. If the leasehold premises is for sale but the landlord cannot complete the sale due to a particular lease, they might turn to termination. Additionally, those concerned that they are no longer able to fulfill their obligations and might be subject to claims as result might attempt to break the lease as a precautionary measure.

What can commercial tenants do to protect themselves if lease termination becomes inevitable?

Ideally, tenants and landlords will have discussed this possibility prior to signing the lease. In this instance, the lease will list acceptable terms under which it can be broken as well as the potential consequences for doing so. With this in mind, here are some elements that commercial tenants should include in their leases:

  • An “early termination” or “break” clause.
  • Reasonable assignment and sublease provisions.

Additionally, tenants might consider signing a short-term lease at first to ensure the property suits their needs and that they can afford the rent moving forward. Limit or avoid commitments based on personal guarantees, too, as these can be particularly dangerous to principals if the tenant’s business is not financially viable.

What can landlords do to protect themselves against unlawful or unreasonable early termination requests or claims?

Similar to actions that tenants take, landlords can protect themselves by writing a lease that includes early termination rights. Not only does this help determine how to handle tenant termination requests.

What are the consequences for wrongly terminating a lease?

Consequences for unlawful lease termination are different for landlords and tenants.

Landlords: Landlords whom wrongfully terminate a lease face potential legal and financial action if the tenant can prove unlawful termination and breach of contract. If the unlawful termination is carried out via the legal system by an eviction proceeding, then landlords also face potential wrongful eviction claims.

Tenants: In addition to being liable for all back rent, landlords are sometimes able to charge tenants for all future rent in the event of an unlawful lease termination. Additionally, wrongful lease termination voids abated rent that might have been offered by the landlord.

What options are available if the landlord or tenant face unexpected circumstances that result in the need for an early termination?

Effective communication is vital. The tenant and landlord should discuss the circumstances behind the early termination request to determine if it is possible to compromise and avoid ending the lease. If working with a landlord’s agent, ensure they have the ability to convey the information from the discussion directly to the landlord.

Tenants and landlords alike should have all pertinent information and be familiar with the details therein. Speaking with an attorney before the meeting is the best course of action in this instance. Commercial leases can be tricky to handle and an experienced lawyer has a better chance of successfully achieving lawful termination than you might do on your own. Discuss how the proposed consequences are beneficial for all involved and set up a payment arrangement for any fees, if possible, and consider talking about rent reduction if necessary.

Are there specific issues that should be addressed in a lease re-negotiation or termination discussion?

Tenants should determine if a lock-out clause exists in their lease or is valid under A.R.S. 33-361. If so, note the details regarding advance notice as well as any other particulars.

Landlords have liens on all tenant property in the premises. It is important for both tenant and landlord to understand what property is removable and what is not under A.R.S. 33-362 or Commercial Landlord Lien Rights as described in the lease. An attorney can help shed light on this complex topic to make sure the law is being followed.

The team at Anthony Law Group can help with your commercial lease early termination questions and needs. Reach out to us today at (602)-362-2396 for more information!

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Anthony Law Group

Anthony Law Group