Breaking Up is Hard To Do
Did you ever get into a relationship and think it would last forever? All of sudden circumstances change (e.g., a pandemic, hyperinflation, recession) and that “forever relationship” just doesn’t make sense. When the issue is finally revealed, one side is usually surprised and hurt while the other side is somewhat relieved. Some of you may be wondering where I am going with this week’s update.
If you own a business and lease space or if you own commercial property and have tenants, you may be faced with a similar situation. Whether you are a landlord or the tenant, breaking up, in the commercial lease sense, is hard to do.
What can you do (Tenant)?
If you are the tenant, do not run and hide. The last thing you should do is stop communicating with your landlord. Your landlord should know your situation and, if possible, be willing to work with you. Remember, a commercial landlord does not make money by going after delinquent tenants. They are looking for a long-term relationship, (some may say the forever kind). However, if you still can’t come to a resolution, make sure you know your options.
What can you do (Landlord)?
If you are a commercial landlord, try to be open-minded. Your tenant not paying rent is probably the least of their worries. Helping them get through a tough situation (like a recession) will serve you both well when it comes time for renewal. If the tenant was a good business pre-recession, chances are they will get back to being a good business once things settle down. However, if the relationship is broken beyond repair, make sure you know how to officially end it.
Whether you are the commercial landlord or tenant, here are some common sections that you should review/understand/update:
- Termination – How can the lease be terminated and what are the ramifications for not providing notice?
- Renewal term – When is the current term expiring and how soon does notice of a renewal need to be given?
- Sublease/assignment – What approvals are needed to sublease the space? If I am selling my business or buying a new one, does the landlord have to approve the lease assignment?
- Confession of Judgment – Most commercial property landlords will have some type of confession of judgment provision in the event the commercial tenant stops paying rent. It essentially means that the landlord can go right into court and get a judgment against the tenant.
- Personal or Business Guarantee – Commercial tenants with personal or business guarantees put their personal and/or business assets are at risk in the event they stop paying rent.
If you have questions about your commercial lease, as a landlord or a tenant, please make sure you take time to review it with your professional advisors (commercial realtor, attorney, accountant, etc.). That way, when it comes time to break up, it is not as hard to do.
Other Items of Interest: