|November 27, 2018||No Comments|
The time comes for every tenant at some point while they are mid lease and they wonder to themselves, can I cancel my commercial lease? The simple reality is that unless your lease has a specific clause that allows you to cancel or terminate the lease, you do not have the right to get out of the lease until your expiry date. We have seen a lot of tenants over the years assume that when they want to get out of their lease they can somehow just cancel it.
Take a look into your lease and search in the table of contents for Lease Cancellation or Lease Termination. If you do not remember negotiating for this clause, it is highly unlikely that the landlord would have such a clause in their lease template.
It may be advantageous for the landlord to allow you to cancel. If the landlord is better off by allowing you to terminate the lease, he or she may be willing to let it happen. So the better question to ask is Can I cancel my commercial lease if there something in it for the landlord?
1. If you are paying below market net rent and the landlord is confident they can quickly find another tenant for your space, they can increase their revenue, and sign a longer term lease than what you have remaining on your existing lease term.
2. If there is another tenant in the building looking for expansion space and the landlord does not have any space to offer. If that tenant’s lease is near expiry and the landlord is fearful that they may move to another building to find more space, the landlord may be inclined to get your space back to offer it to them. The added bonus for the landlord is that they may prefer to deal with fewer tenants in their building as this makes the building easier to administer.
3. If you have for some reason been a tenant the landlord does not want to deal with anymore. Perhaps you have too many visitors, or other tenants have complained about you.
There are really no general rules to decide on what a penalty is if you reach the stage with your landlord to talk about getting out of the lease. If any of the above scenarios make it enticing for your landlord to cancel the lease, you may be able to just walk away. If the incentives above are just moderate, then your landlord would likely want some compensation from you to make it more worthwhile.
If we had to pin down a rough range on what the penalty would look like, it would probably be 2-6 months? worth of rent, but situations can vary. Since you most likely have the right to sublet your space, you should weigh the cost of getting out of your lease to what it would cost you to sublease. Cancelling the lease would not have real estate broker fees involved, but if you are paying a below market rental rate, then you may be able to break even on the rent a subtenant would pay you.