Commercial leases are executory contracts that often last for multiple years. Many leases require a commitment of three to five years, sometimes even longer. Commercial tenants effectively lock themselves into the same space for multiple years.
If the company fails, the business may technically still be responsible for the remaining payments for the duration of the lease. If the company expands rapidly and needs different facilities, the landlord may hold them accountable for the remainder of the lease.
There are countless scenarios in which business leaders may want to terminate a commercial lease early. Proper provisions in the lease itself may allow for reduced risk when ending a lease prematurely. What lease terms help limit the risks associated with a lengthy commercial lease?
Force majeure clauses
Sometimes, companies fail because leaders make the wrong choices. Other times, businesses may struggle due to factors outside of the control of owners or executives.
Natural disasters could cause supply chain disruptions that prevent a company from operating or raise costs enough to eliminate profit margins. Acts of terrorism could damage infrastructure and leave the company incapable of operating indefinitely.
A force majeure clause, sometimes called “an act of God” clause, allows the tenant to terminate a lease early if the factors outside of their control prevent the company from operating. Landlords can also theoretically benefit from force majeure clauses that absolve them of their obligations if uncontrollable factors influence their ability to maintain the facilities for their tenants.
Lease assignment clauses
When tenants want to exit a unit because they cannot afford it due to low sales or because they need more space due to the business’s success, finding a new tenant may seem like the best option. They could find another business to assume their lease.
However, landlords sometimes include provisions in commercial leases that prevent tenants from assigning the lease to others. Tenants may want to negotiate with their landlords to allow them to assign the lease to others in certain, qualifying scenarios.
Negotiating favorable commercial lease terms can help prevent business leaders from overextending the company and leaving themselves personally vulnerable. Business leaders hoping to negotiate an early lease termination may need help reviewing existing lease documents and communicating about their concerns with their commercial landlords.