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My husband and I are thinking of closing our business. We have been renting our current location for over 30 years. Our lease is up in 2 years. The original lease was signed by my husband's father in the corportation name with his name signed beneath it as president. If we close, will we be responsible for the last two year's rent? What should I look for in the lease that would let me know?
Elaine:
Your question is primarily a legal matter that needs to be answered by an attorney.
I assume you have already tried to sell your business through a business broker or find someone to operate your business until the lease is up.
I can tell you that if escaping the remaining rental obligation is not possible, often a tenant will try offering the landlord what is called a "termination fee" to induce the landlord into letting you limit your remaining liability.
Normally the landlord will consider things like how long it will take him to re-lease the premises, how much he can rent the vacant space for in the current market, how much it will cost him to legally chase the tenant if they just stop paying the rent, and IF there are any funds the landlord will get if they manage to drag the tenant into court, etc.
If you have a great location now you can bet that the landlord will be happy to let you get out of your lease with only the equivalent of 3 to 6 months rent as a termination fee because it expects it will take perhaps 1 to 3 months to find a new tenant and get a new lease signed, plus another 1 to 3 months to get the space prepared for the tenant to move into.
If because your current location is not appealing to prospective tenants for one reason or another, or if the recession has eliminated prospective tenants in your area, you may find that the landlord will chase you aggressively in court for the rent due if your attorney cannot get you out of your lease obligation.
Keep one thing in mind regarding this matter. A landlord is required to MITIGATE DAMAGES if you must close up your business. Very generally this means that the landlord must make reasonable efforts to minimize the amount of losses it incurs and to try and relet your premises if your business is no longer paying the rent.
For example, the landlord cannot simply reject a tenant offering to rent your space from the landlord for the same or slightly more rent than you are paying just because it hopes to find a new tenant that will pay it twice as much rent. A landlord is allowed to reject a lease offer for many other reasons however. This may not be a great example, however, you need to know that the landlord must make a reasonable effort to re-lease your space once you vacate the premises. Your attorney will be able to tell you much more about mitigating damages.
I am sorry to learn of your problem. I must be tough closing a family business after 30 years in one location. You certainly are not alone. In this recession, a massive number of businesses in our country have suffered what you are experiencing.
Good Luck,
- Jim
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Answers by Expert:
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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