Trying to exit a commercial lease? Don’t hit the panic button!

I’ve been getting a number of emails and calls from people wanting some tips on how to get out of a commercial property lease.

I won’t pull any punches. It is a painful exercise whatever way you look at it and I would only ever recommend exiting a lease early as a last resort.

The simple fact is you will have to find a lump sum to pay out the lease contract, and if you want to pay the landlord a smaller percentage than what is owing until the end of the lease, it will be a very tough negotiation.

There are a number of key steps I recommend before making the hard call to cancel out of a lease.

1. Make the decision to react logically and not emotionally. People’s fears about toughening economic conditions, a drop in sales and reduced cash flow have a subtle effect on many business leaders. They make the decisions they think they should to cut costs, rather than making decisions completely based on fact.
2. Revisit the circumstances that existed when you signed your lease and ask; what has changed?
3. Consider if you think circumstances will change back to the way they were when you entered the lease. This will give you your ‘gap analysis.’ You can then quantify the gap. Exactly what is the shortfall?
4. Consider your options to share your space with others to cut costs. There is always the potential to either sublease, where you take responsibility for someone else sharing your space and lease costs, or assigning, where you have another tenant enter a relationship with your landlord for some of your space, while maintaining responsibility for their continued occupancy.
5. Consult your landlord:
   • To see if they have other potential tenants to share some of your space,
   • To ask if they have a smaller space that would suit you better,
   • To find out whether you can negotiate a temporary reduction in rent, a variation in terms or a rent holiday.

If you want to exit a lease early, you will have to pay. And it is worth considering if you can find the cash to pay out your lease. You might just as easily use that sum to continue the lease, perhaps with adjusted conditions and payment schedules to carry you through.

Flexibility is the key to success in coming out on top if you’re considering pulling out of a lease. It is in neither a landlord’s nor a tenant’s best interests to terminate a lease early.

Take on thinking of creative options; working with your landlord to resolve the situation, looking at all the variables to share space, adjust payments, terms and conditions. Whatever you do, don’t hit the panic button!