Expert: Mike Fortunato - 8/22/2011

Question
QUESTION: Our non-profit is currently half way through a 3 year lease of a small commercial property which both our organization and the building owner knew we couldn't afford from day one. Because of such bad decisions this has made the agreement the lease from hell.

For the first time in 18 months we are finally behind in our rent and don't know how to move forward. We have no problem with moving to a more affordable building but we'd like to try to honor our lease as much as we can. We're also more than willing to take on a smaller space in the building we're in. Problem is the owner shows no interest at all in letting us redo our lease or letting us out. He probably would throw us out immediately if he could find another renter.

We really don't know how to move forward with this. I'll try to give as much as the history as I can to see .... if you can help.

Here's the history:

In looking for small building to lease in order to house our new non-profit we spotted a building that had been vacant for quite some time and called about it. Upon learning its cost we told the owner that it was 5 times more than we could afford. He then suggested to me that I consider seeing if there were other organizations that could come in with us that we could sublease to. I'd never done that before but ran a few ads to see if there were any prospects and found a few. Upon telling the owner our find, we signed a 3 year lease with him and that's when all troubles started.

Almost every tenant we got to come in to help, soon had financial problems and couldn't pay, which made it almost impossible for us to pay. His words were .. you are still responsible for paying rent, so get them out and get new ones which we continually worked to do. While we were always able to pay our rent every month however, this same process has repeated itself over and over again for the last year and a half. The difference is even though we have paid our rent every month we have not been successful at all as we were in the beginning at subleasing the suites. Several times I have asked him to let me out of the lease and he will not. I've also asked him several times if we could just rent one space in the building ourselves and he take the rest of the building on to rent it out himself and he constantly reminds me that ... that wasn't our agreement.

This huge strain has caused us to have both the electric and gas turned off in the past ... gas turned off twice (its off now) yet even in all of that we have always paid our rent. Last month was the first month we were not able to pay rent at all and with the utilities off although we're constantly seeking new tenants I don't know how the next month is going to be paid. Keep in mind the rent is 5 times more than we ourselves could ever afford and he knew that as well as we did before the agreement was signed.  That's why he suggested getting tenants and subleasing. I've always thought since it was his suggestion that he would be more lenient. It has been the worst experience in my life,.

This venture has totally side tracked us from what our non profit was established to do. It has now gotten us into the business of building management which we knew nothing about and have been very unsuccessful at and as a result of it BOTH ventures are now terribly failing.

There are a number of other more affordable places we could move to, even areas in the building that we can handle ourselves IF he would redo our lease or let us out of it, but he won't. To help us meet the note and get back on track  over the last month we've even brought new people in at much lower rates but because WE'RE behind now he can throw us all out - even the new tenants who are paying.

I really don't know what to do.

Should we keep trying to bring in new tenants even if its only half paying the rent?

Should we just leave and let the new tenants deal with him?

Should we just let him throw us all out?

Should be just keep emptying our organizations bank account to pay rent?

We want to do the right thing but I don't know what to do and or even what else to propose. His only words to me are ... "pay your rent" which we can no longer afford.

In all of this is there something else that I can propose or do or stop doing that might help.


Karl

ANSWER: Unfortunately, I get this question a lot, and there's really not much you can do relating to breaking a lease. After all, if things were good, you wouldn't want the landlord to break the lease either. One thing you could do is offer a lease buyout, where you make a lump sum payment which is discounted from the remaining worth of the lease term. But of course, that is rarely a viable option for tenants in distress. Wish I had an easy answer....I agree, sounds like this was a bad idea from the start. But as much as the landlord induced you into that strategy, ultimately you signed on to it so the contract is likely valid (you can check with an attorney though for a legal opinion).

---------- FOLLOW-UP ----------

QUESTION: Hi Mike and thanks again for the quick response. I am in no way holding the owner responsible and I do relize that I did sign which is why I am still there and have paid untill last month. I'm not so much worried about us or the other tenants in the building as I am about what will happen to him. I can stay and pay what we can or I can prepare to leave and give the month to month tenants that we've brought in a notice to quit. I'm quite sure he wouldn't try to take us to court. What I'm not so sure of is, if he'll be able to get another tenant to take on the bulding (I think the only reason he allowed us in was out of despartion) It was vacant for a long time before we came and hes been trying the whole time we've been there to get a more secure tenant to take it over. I'd hate to leave him hanging which I have'nt as of yet and don't want... I just don't know which way to move on this. Oh ... and if we can't even pay the rent then of course I'm sure you know a buy out is out is not even imaginable. Thanks so much however for your response.

Answer
Your concern for the owner is admirable, but there really isn't much of a chance for a compromise unless the owner engages you in discussion beyond what you wrote in your question (which is basically, pay the rent). Perhaps once he knows you're out of options and are seriously planning to leave, then he may become more involved.