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Commercial Real Estate Investment/getting out of commercial real estate lease in CA

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Expert: - 2/15/2009


Question
Hi, we have a little more than 3 years left on a 5 year commercial real estate lease in Southern California. A property has just become available which not only would be perfect for us but would also be 10%+ cheaper per month than we're paying now. Do we have any options that would allow us to get out of our lease and take advantage of this tremendous opportunity?
Thanks.

Answer
Anthony-

It is unlikely you can get our of your lease, unless you negotiated a very unusual tenant's "Right to Terminate" in the lease for some reason prior to the end of your lease term. If you don't remember one than I am certain you didn't ask for the right.

Check the provisions in your lease that address your rights regarding "Sublease" and "Assignment" of your lease.  If there is a modest to strong demand for your particular premises in the marketplace now, you may be able to sublet or assign your lease without experiencing any financial loss.   It is up to you to determine how much of a loss you will accept to agree to a sublease or assignment where the new tenant's occupancy actually requires you to help subsidize their sublease or assignment rental.

Unless you have lease extension options in your lease, the fact that there are only three (3) years remaining on your lease will have a limiting impact upon your success with subletting or assignment.

Remember, unless your sublease and assignment rights are unusual, you will remain liable to guarantee your subtenant or assignee's rental payments through the end of your lease term; so you better be certain that your subtenant can pay the rent until the lease is finished.

Often there are many, MANY, conditions attached to having the right to sublet or assign your lease.  Landlords take those conditions VERY, VERY, seriously, so don't attempt to mitigate the conditions. You must observe those limiting conditions very carefully.

If there is strong demand in your market area for your premises; 1.) you might ask the contiguous occupants if they are interested in subleasing or taking assignment of your space, or, at some potential risk, 2.) tell your landlord that if he has anyone that is interested in taking your space, you would like to enter into discussions of the terms a successor tenant would offer - or on what basis the landlord would agree to to totally and completely extinguish your liability for continued financial obligation.

Be very careful, very often, tenants hear only what they want to hear in coming to agreement over escaping their lease obligation, and they end up with some form of dangling responsibility that bites them back HARD after they move out and think that the former lease responsiblities are terminated.

Proceed with caution.

Good luck my friends.

-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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