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Exiting a commercial lease

| Jun 2, 2016 | Commercial Real Estate |

Once you sign a lease, you’re locked in. You can’t just pack up shop and stop paying the lease of your own volition. This means that you could be stuck in a commercial property in Florida that you no longer want.

For example, imagine that your business makes $100,000 per year, and you rent a new space because you think the greater traffic will increase your sales. Six months in, it’s clear that you’re going to be well off the mark, as you’ve only made $25,000. You then have to stay in that property, even though it means you’ll lose $50,000 on the year.

Clearly, you don’t want those losses, which is why you need to address this up front. One option is to ask for a clause that gives you an out if the projections don’t match up with reality. In your case, you may want to say that you can break the lease after six months, for example, if you haven’t made at least $50,000. You could also say you can get out of a multi-year lease if you haven’t made $100,000 in 12 months.

Doing this ensures that you’re at least not going to lose money because of a miscalculation in what the new space can do for you. You still may not earn as much as you hoped, but you don’t have to sit around for months and watch your company fold all because you can’t move to a better location.

The most important thing you can do is to consider all of these things at the beginning. With those lease clauses in place, you then have control over the lease, rather than giving all control to the landlord who just wants that rent check.

Source: Entrepreneur, “Getting Out of a Commercial Lease,” Jeffrey Steinberger, accessed June 02, 2016

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