If the past couple of years has taught us anything, it is that predicting the future is not an easy exercise. This particularly stands true when it comes to setting up a working environment for yourself and your employees. For example, you may find out too late that you need a large office instead of your current coworking space. You may find yourself in a situation where breaking a commercial lease is your only way out of a difficult situation.
If you are wondering how to break a commercial lease without breaking the bank, you are in the right place. Here are three techniques that may allow you to break a business lease agreement with a minimal financial impact.
Why Might You Want to Break a Commercial Lease?
Any business venture is made of highs and lows. Sometimes, you will also need to make a hard decision, such as the one to break a commercial lease, in order to optimize your business. Although it is not a desirable outcome, anyone in charge of the development of a company should be able to recognize the signs indicating that you should break a business lease as the best possible move and know how to do so while minimizing the negative impacts.
A common reason – and, in many cases, a positive one – to break an office lease is that your team has outgrown its current setup. Alternatively, you may have downsized your team because some posts were made redundant, or you are switching to a hybrid model. Either way, you may need to break a commercial lease to find accommodations better suited to your current needs.
Your company may also need to change locations, whether it is across town or across the country, to find new opportunities. Finally, on some occasions, you may have issues with your landlords – such as lease increases, lack of maintenance, or personal conflict – and would rather break an office lease to avoid dealing with ongoing problems.
What Happens When You Break a Commercial Lease?
If you find yourself in one of the above-mentioned situations, you are likely wondering: “What happens if I break a commercial lease?” It is a legitimate concern since local laws, including contract laws, landlord-tenant laws, etc., consider this situation to be a breach of contract and may impose sanctions on your company.
The consequences depend on your location and the terms of your lease, but as a general rule, your landlord will expect to receive sufficient financial compensation to help them stay on their feet and find new tenants. In some cases, a local court may decide on the extent of the damages. However, it is unlikely that your company will be obligated to remain on the premises.
How to Break a Commercial Lease Cost-Effectively?
Once you have made a decision, you are probably pondering how to break a commercial lease while keeping the financial outcome reasonable. Here are three ways to go about it.
When tenants break an office lease, one of the landlord’s primary concerns is their ability to fill up the space rapidly to minimize any lost income. Therefore, if you are wondering how to break an office lease while reducing the negative impact on both the tenant and the landlord, you may be able to convince the property owner to let you sublease the space until the end of your lease. Subleasing can be presented as a win-win situation. The leaving tenants will not bear the cost of paying for a space they will not use while starting a new lease on a space that better fits their needs. Meanwhile, landlords can avoid any loss of income while at the same time avoiding the legwork of finding new takers for the lease.
In most cases, landlords include a clause in their commercial lease forbidding tenants to rent out the commercial space to a third party without their approval. Therefore, if you are considering breaking a commercial lease, your first step should be to approach your landlord and request their consent if you have found a potential subletter.
If you think subleasing your space may be a suitable option – if you are nearing the term of your lease and the area is in high demand, for example – keep in mind that you will still be responsible for the lease and may be held liable for any damages and violation incurred by the subletter. In addition, although the landlord may agree to this option, they can also ask that you pay additional fees associated with the sublease.
Offering your landlord to buy out your remaining lease is another way to break an office lease without having to pay the remaining monthly installments until the end of your contract. In this scenario, you may offer your landlord a lump sum to get out of a commercial lease. Since the landlord will receive the money ahead of time while still having the option of finding a new tenant to take over the lease, they are more likely to agree to a discount.
It can be an excellent option for tenants with several years left on their initial leasing agreement since the landlord also has more time to find a taker for their commercial space. Landlords may also be more willing to negotiate if the office is located in a desirable area and is therefore likely to find a new buyer rapidly.
Negotiating a Termination Clause
Finally, you may also break an office lease while reducing the financial burden by negotiating a termination clause (also known as an exit clause) with your landlord. For an optimal outcome, it is best to negotiate the terms of this exit strategy before signing a lease. However, not all is lost if you lacked this foresight.
The condition of this termination clause may vary widely depending on how much leverage you have, the economic conditions, your local state laws, and if the landlords themselves may be at fault. To put all the chances on your side for an optimal outcome, it is best to thoroughly document the situation and demonstrate a willingness to compromise.
How to Avoid Breaking a Commercial Lease in the Future
Even with excellent negotiation skills, breaking a commercial lease without losing any money in the process can be tricky. Therefore, the best strategy is often to prevent finding yourself in a position when you have to break a business lease agreement. Here are some things to keep in mind before signing your next lease.
Consider Flexible Office Space Instead of Traditional Leases
Whether you have an established company or are just getting started, flexibility is essential in today’s work environment. It allows you to streamline the use of space – for example, you only need to lease as much office space as you need at any given time. Besides, more and more employees are valuing the opportunity to adopt remote and hybrid work models whenever possible, leaving office spaces empty part-time. Therefore, you may want to consider alternative options instead of traditional office space.
Flexible office spaces give you the opportunity to pay only for the space you need at any given time. Depending on the time of the year and the size of your team, you may need a large office or more coworking spaces. It allows for a better workflow and avoids the economic impact of having to break an office lease that does not fit your needs.
Avoid Long Leases When Your Company Is Going Through Periods of Change
Most companies know periods of high growth and contraction as they adjust to the demand. Instead of finding yourself rapidly crammed into tight quarters or paying extra for office space that is not used, it is best to prefer shorter leases when your company is expanding. You can also use the flexibility of daily offices for rent to supplement on an as-needed basis.
Beware of the Terms of the Lease
In the excitement of the moment, it is easy to forget to read the thin print at the bottom of your lease. However, this oversight can become a costly mistake when things do not go as planned.
Before signing on a new lease, make sure to take careful notes on the terms offered, and do not hesitate to clarify with the landlord if you have any questions or concerns. If you notice that some elements may be missing, such as financial penalties when breaking a lease, the impact on your security deposit, and the terms and conditions that apply to subletting the commercial space, it is best to clear up these points ahead of time.
What Alternatives to Breaking a Commercial Lease?
Breaking a commercial lease may seem like the only possible way out of a difficult situation. However, you can also opt for a more flexible environment that allows your company to grow and adapt to change more efficiently, whether it is the type or amount of workspace you need at any given moment. 620 N LaSalle offers flexible office space for lease for all types of businesses, ranging from daily offices and conference rooms of all sizes to coworking spaces.
Contact us today to find out how we can help your business grow.
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