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Will your business be responsible for a lease when it can’t open?

On Behalf of | Nov 30, 2021 | Commercial Real Estate |

Signing a commercial lease means accepting years of financial obligation to a landlord. Unlike residential leases, commercial leases often last for multiple years. You need to have faith in your business to take responsibility for multiple years of commercial rent payments.

If you already know that your business model works and only need to renew your lease or move into a better space, you may feel like there aren’t many risks involved in signing a commercial lease. Proper insurance and a good business plan can also help you minimize your risks.

However, things outside of your control can happen. If you can’t continue operating your business, your landlord can hold your business accountable for rent payments.

Commercial leases can be unforgiving

Business failure is a common risk, and landlords renting to startups often take aggressive steps to protect themselves if a tenant’s business fails. Commercial leases often persist even when a business closes.

Commercial landlords can demand rent payments even when the business is unable to open due to emergency situations or even after the company goes out of business altogether. How can you protect yourself from rent obligations if there are business issues that you can’t control?

Add a force majeure clause to your lease

Commercial leases should extend protections and benefits to both of the parties signing. Your landlord benefits from having a tenant and receiving rent, while you benefit from having a space that your company can call home. Your company will typically still have to pay rent until the lease ends or the landlord replaces you as a tenant even if your company closes.

Adding a force majeure clause gives you an opportunity to minimize those rent obligations. Force majeure means “greater force,” and it refers to situations someone could neither foresee nor control. In a commercial lease, a force majeure clause essentially gives your business a way to avoid rental obligations if you are unable to operate due to forces beyond your control.

Natural disasters and terrorist attacks are among examples of circumstances that would trigger a force majeure clause and exempt your business from financial responsibility for rent while you were unable to open because of circumstances outside of your control.

Thinking about the best way to protect your business and minimize its liabilities when signing a commercial lease can help you negotiate favorable terms in that crucial contract.