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Is eviction the right response to a changing business plan?

On Behalf of | Oct 25, 2023 | Commercial Real Estate |

Commercial landlords have different obligations than residential landlords do. They also typically have more details included in their leases because of the increased liability that comes from having businesses as tenants. 

Those renting commercial properties may have just started a business and are often still fine-tuning how they will run their organizations. They may eventually determine that they want to drastically shift their business model because their initial concept is simply not lucrative enough. 

A company that intended to primarily offer repair or support services, for example, might shift to doing custom-product manufacturing to create bespoke, high-profit products. Some commercial tenants might even try to shift how the company operates without disclosing it to a landlord. Is a significantly different business model potentially a reason for a commercial landlord to pursue an eviction? 

A change in business can mean a change in costs and risks

Some landlords will seek to terminate commercial leases with tenants who have shifted their business models. In the example given above, there will be customers or clients coming to the facility, and that will put a lot more strain on the landlord’s infrastructure. There will be more need for bathroom facilities and parking spaces. There’s also an increased risk of people getting injured while visiting the premises. 

In some cases, landlords are not willing to assume that additional risk and may choose to have tenants leave when they change how they operate their companies. Their leases may include clauses that limit the company to the previously disclosed business model. Other times, it may be necessary to renegotiate the terms of a lease to increase how much tenants pay in maintenance costs or ensure that they will absorb those additional costs. 

Landlords may also require additional types of insurance to protect themselves from claims made by the people visiting their tenants. Many landlords include clauses within their leases limiting the scope of their tenants’ business operations specifically to mitigate the liability and expenses that they would have to otherwise absorb.

In some cases, landlords may have already included  clauses discussing limitations on client operations and will therefore have reason to pursue an eviction when a tenant drastically shifts how an organization operates. Other times, landlords may need to renegotiate the lease or discuss terminating the lease with the tenant. 

Ideally, landlords can reach a solution that will not require them to go through formal commercial eviction proceedings, which can be both very lengthy and expensive. Recognizing when matters with tenants may justify changing or ending a rental agreement can help commercial landlords more effectively protect their best interests.