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Commercial Real Estate Investment/Am I still on the hook for the remainder?

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Expert: - 11/17/2008


Question
My business closed one and a half years into a three year lease. I am responsible for the remainder of the lease that I intend on taking care of, but the landlord has now rented the space to someone else. Will this reduce my payment since someone is now renting it?

Answer
Dave-

The answer to your question normally is yes.

In most areas, a landlord is legally required to mitigate the rental loss of your early termination of the three year lease obligation you agreed to originally.

Note however, that the landlord / tenant law applicable in your geographic area or the specific terms of your lease (look for this language in your lease) allow the landlord to assess you not only for his lost rental for the period the space was un-occupied. If the rent being paid by the new tenant is less than your former lease rate, the landlord may try to charge you for the differential in rent for your entire remaining term.

The landlord is usually allowed to legally assess you for any other  actual costs he/she incurred to re-lease your space.  These charges could include the landlord's cost for advertising your vacant space, any cost for improvements the landlord made to prepare the premises for the new tenant such as re-painting, re-carpeting, etc. and reasonable legal charges to file a legal action to seek to recover his lost lease income.

Sorry for the bad news.  However, the good news is that the landlord may not go to the effort to recover ALL of the costs he/she incurred and that it is legally empowered to recover.

Finally, you have a right to be provided with the details of the total costs that your landlord is attempting to recover from you.  It is not uncommon for a landlord to attempt to recover more in losses than it actually incurred.  Ask for a DETAILED breakdown of all of the charges.  If you go to court ask the judge to require the landlord to provide the breakdown of expenses for you, or simply request the DETAILED breakdown in writing, via certified mail, from the landlord after you are told how much the landlords is claiming.  

The landlord CANNOT ask you to reimburse him for more than his actual amount of losses once your old space is released.

I have tried to simplify what can be a complex matter. Write me a follow-up question if you have any further questions.  I know this is a difficult and costly situation.

Good luck.

-Jim  

Commercial Real Estate Investment

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Jim Avancena, CPM

Expertise

Best qualified to answer questions that involve commercial leases, that is, basic issues as well as the often unexpected effects of the complexities and inter-relationships of the provisions a lease may contain, explain how seemingly innocuous text in your lease can have a major impact on a Tenant or Landlord and their business operations, and the common practices utilized in the industry. I can untangle most matters that may come up from the time a tenant begins searching for a office or store space and the lease acquisition process, concerns related to remodeling/improving the leased premises, moving-in, subletting or assigning the leased space, and a long list of problems that may come up during the lease term and even after a tenant moves out. I have practical experience with most property management issues and resolving landlord and tenant disputes - especially those involving what may appear to be overcharges assessed for additional lease charges like CAM costs, operating expense reimbursement, real estate taxes, utilities, construction improvements etc. Note that I am not an attorney and cannot provide legal advice.

Experience

Thirty years active experience in the commercial real estate industry as a licensed real estate broker in the Washington DC Metro area (DC, Northern Virginia & Maryland). I have been admitted (approved) by the Maryland and DC courts to testify as an expert witness on the subjects of Commercial Leasing and Property Management in the area of standard industry practices. I have had a business for the last 14 years advising virtually every form of business entity from large national corporations to the smallest ma & pa new businesses regarding a wide range of commercial real estate matters in addition to property management and commercial leasing.

Organizations
Currently my three children keep me so busy that it is difficult to participate in organizations with continuing and specific time requirements.

Publications
I publish a local commercial real estate newsletter titled: "Tenants First". My firm was the subject of a high profile Washington Post business section cover page (2.25 full pages) feature story on January 13, 1993; titled "Overcharging Overhead".

Education/Credentials
BA in Political Science from Memphis University, and five years of study in the real estate development summer program at MIT. I was certified as a commercial property manager (CPM-IREM), and currently hold a brokers license in Maryland and the District of Columbia.

Awards and Honors
The same plaques and honors that most others in my industry have earned. I have none that I consider especially meaningful.

Past/Present Clients
Past clients include: The World Bank, George Washington University, National Association of Criminal Defense Attorneys, US Department of Commerce, The American Benefits Council, K-Mart Development, many law firms, a national union, other major organizations, and many, many small business firms and retail operators that I am most honored to serve. I estimate more than 1,500 firms/organizations.

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