Expert: Jim Avancena, CPM - 7/18/2011

Question
I am currently under a commercial lease that is now into its 8th year, even though I initially signed only a 5-year lease.  I am a woman-owned small business--a gift and home decor store--and have a lease with the larges commercial broker in this state.  I think its important that I give you some background on my situation.  I am currently trying to get out of this lease--I work two other jobs in order to generate enough income to continue to pay the monthly expenses on this property.

I originally entered into a lease in January of 2004--a five year lease.  About 18 months into that lease, I realized I needed more space, and the bay next door to me became available.  I approached the property owner about taking that space, but my request was that I tie it in with my existing space, as I was very nervous about the additional rent. I was a new business owner and had never negotiated a lease before, and unfortunately, when I was told that the only way I could gain access to that bay was to begin a new 5-year lease, I believed it, and reluctantly signed a new lease.  Thirty days later this commercial real estate company--who also had a residential side to their business--fired all their residential subcontractors including my husband and our income was cut by about 2/3's.  This business was not providing any profit at that point, and my husband's name was required on the lease as I did not have the resources to enter into the lease on my own.  The commercial real estate company claimed they had no idea this was going to happen.  Still--it was a souring experience.

Now to the current dilemma.  After a couple of years of struggling with the increased rent, and losing significant personal income, I was able to locate a tenant to sublet a portion of the second bay, and this small business owner entered into a lease with me directly, as the approval of the commercial real estate company, who did not get involved at that time.  Shortly after, I found a second tenant to sublet the other half of the second bay, and had the same arrangement.  Unfortunately, the second tenant went belly-up in less than 6 months, and quit paying rent after a major rennovation that left the space unusable for me.  However, an existing tenant in the same buiding was interested in taking back ALL of the second bay I had leased at the 18 month mark, but only if it could take all of the bay--not just the part that had been vacated.

I approached the remaining tenant and offered her half of my bay in order that I could completely get out from under the second bay, given my store was continuing to flounder.  Unfortunately, she refused to move her business from the second bay, even though I offered to pay all expenses and renovations costs.  The commercial property owner told me they would not lease the second bay to the intereted tenant UNLESS the remaining tenant (who only had a lease with me) signed a document releasing me from that lease.  Unfortunately, that remaining tenant refused to move unless I agreed to extend her lease an additional two years beyond the current lease.  I was basically caught between a rock and a hard place due to the commercial property owner's demand, and the remaining tenants unwillingness to move.

Under duress, I agreed to a two-year extension on the existing lease as I had to get out from under the rent ASAP on the second bay as I had no resources to continue to pay rent. The second bay was rented to the interested tenant who needed more space and who was already in the building, and my tenant moved into my space and I paid for all renovations.

My business has come to a stand still, and although I still have 20 months left on my lease, I want to get out now.  My tenant who forced the two year extension now wants to move as well!  My question is simply this?  Do I have any grounds at all to file a suit against the commercial property owner who refused to sign on a new tenant by forcing me into a two-year extension?  I feel like I was coerced--if I was offering my tenant a comparable space and was willing to pay for all renovations, and the lease was between she and I and the commercial property owner had no involvement in that initial process, what right did they have to require my tenant to get what she wanted in order to get me out of an awful financial situation.  They knew they were getting an additional two years out of me.  My lease with my tenant did not include any kind of relocation clause--it was a simple one page lease with just the basics.

In hindsight I know I was remiss in not having legal guidance.  But when you have already lost $100,000 and refinanced your home, paying an attorney wasn't in the budget at the time.  But of course, today I am regretting that decision.

I'm really just very irritated at the many unethical tactics that were used by this commercial property company.  Attempts to meet with them are difficult--as long as they continue to receive the rent check they are unresponsive to my requests for one-on-one meetings to talk about a buy-out.  I am now planning to talk to a bankruptcy attorney about heading in that direction, if I can know that my retirement investments would be protected.

Your opinion is appreciated.

Answer
Linda:

The sad truth is that you got involved in commercial leasing and sub-leasing without knowing what you were doing and thought simple common sense was all you needed to make the right decisions.   This is a mistake that innocent tenants make over and over again everyday, and 99 out of 100 times they just dig themselves deeper into problems.

Landlords are usually far more experienced at knowing and understanding the inter-relationships and effects of the hundreds of provisions in a commercial lease and if they give many of their tenants enough rope, the tenants will hang themselves.   You have gotten into several difficult predicaments and gotten into subletting/assigning your space, trying to move forward without understanding the complexities involved with what you were doing.       

You need to get a commercial leasing attorney to untangle the situation you are in and advise you how to proceed.  Leases are complex legal agreements and common sense will usually create tenant casualties.

When you have dug yourself a hole, stop digging.   Get a wise attorney without delay.

Good luck.

- Jim