Question Hello! We just started a 5 year lease with no personal guaranty on May 1st and we already want out. We signed the lease in Septemeber, right before the financial collapse. Our lot is half empty and our sales are terrible. Rent including extras is $9,200 and already I can't afford rent. I spoke to the landlord about our situation and he reduced rent to $2,500 per month plus 5% gross sales to the end of the year. They plan to go back to original rent in January. I already know I won't be able to afford it come January. Miracles won't happen!!
What can I do? We've decided to stay at least to the end of year to show some good faith and give it a shot. In the meantime, we have to open our previous location to generate cash flow to make ends meet. If we bail from this location in January how much can the landlord sue me for? Is it just the months he has the space vacant? So if its two months, it's only $18,400? Could he put a lien on my inventory in our other location?
I guess what I'm asking is, what would our liability be, for how long and for how much? Thank you so much for your help.
Answer Jon
There are a lot of unanswered questions in your story.
first, I assume you are selling cars or trailers or something requiring a lot -- that doesn't really matter, inventory is inventory.
-- you say you will stay in good faith -- there is no good faith in this situation as you are trying to get out of your comitment -- whats the point of having leases if they are to be broken like this?
2nd, as I have told many people, I am based in Toronto Canada. Our laws vary considerably not only between Canada and United States but also your laws will vary from state to state.
3rd, in order to fully understand the details of your situation, I would have to review the entire lease the you signed.
A lease typically has "remedies of default" which the landlord can exercise under such circumstances. I don't know if you release says he can lean your equipment or inventory, or change your locks etc. please read the section in your lease which pertains to remedies of default.
3b) there may also be state law which overrides what your lease says.
4) most perplexing is that you just signed this lease, and within three months can already predict what the future of five years under lease will hold.
When starting a new business, the first thing you need is a business plan. Typically people don't start driving somewhere unless they know where they're going and if it is somewhere that they have not been before, they would want to consult them out before they go there.
A business plan may seem mundane or redundant but the exercise of going through the template in answering all the questions he asked you a very clear picture of the future.
Most businesses fail because they don't have a clear vision or map.
Evidently you have done this business before as you mentioned previous location.... this brings up more questions... why did you move from the previous location if it was doing better than this location? If it is strong enough to support both locations, perhaps you shouldn't have "bailed" from that location in the first place.
5) I have never seen a landlord, in any country, dropped Renfro 9200 per month to 2500 per month -- especially basing the balance of 5% of your gross sales which is almost impossible to police.
6) again on an assumption, I assume if you signed a five-year deal you probably got some free rent up front if this is the case, it sounds to me like you are moving from location to location based on the free rent. Of course I could be wrong because I don't know the whole picture.
7) you signed a lease with no personal guarantee; that's a pretty wide open statement, I don't know if you put it in your own name, or in a company name. Here in Ontario either way you are still not out of the reach of the law by trying to hide behind company anyway as the officers of the company are still liable to some degree.
8) what can he sue you for? If he has a good lawyer he can sue you for lots of things, the most obvious is nonpayment of rent, perhaps the fact you may have blocked the deal from another potential tenant,
Can he restrain your goods or lean your equipment, and it depends on your state and your lease.
Here in Ontario, a typical commercial lease, the landlord can change the locks, restrain goods, lein your equipment and sell it but only in an amount equal to what is owing from outstanding rent, and/or damage to the property, that type of thing.
But he must also prove that he did everything he could to mitigate his losses, in other words you can't simply leave the property vacant for five years and not try to release it, then sue you for the balance -- he must be able to prove that he tried to lease it but until that time that he actually finds another tenant, you are on the hook.
Your counter to that of course is proof that you can't pay. The judge might come up with some type of an arrangement where you can pay something per month - again this varies from situation to situation and depending on what Judge you have.
What would I do in a situation? First of all I wouldn't put myself in that situation in the first place by making a proper plan.
In your situation I would go back to the landlord explain the situation and see what he would be happy with. You want him to sign some sort of quitclaim agreement with you -- basically something saying that we absolve each other from our obligations -- this might cost you something to do that.
