Leases are legally binding contracts, and breaking one can have serious consequences. But sometimes, businesses have no choice but to terminate their lease agreement. If you find yourself in this situation, here are some tips on legally breaking your commercial lease without litigation.
Consequences of Breaking a Commercial Lease
Under most circumstances, breaking a lease is considered a legal breach of contract. The Landlord may be entitled to exercise certain remedies and claim damages. Please see our article on “Landlord’s Remedies in the event of Default by Commercial Tenant” for a detailed overview of the rights that a Landlord may have against a Tenant in the event of default by a Tenant.
To avoid potential legal consequences, you must understand your lease agreement and the laws governing commercial leases. You should also consult an experienced business lawyer to find out your options and how to protect your interests. Generally, breaking out of a commercial lease may be accomplished using the following methods:
a. Negotiate an early termination with your Landlord;
b. Attempt to terminate lease due to breach by Landlord; or
c. Sublet or assign the lease to another party.
Negotiate an early termination with your Landlord
If you’re unable to make rent or need to get out of your lease for any other reason, the first step is to try and negotiate a way out with your Landlord. If you have a good relationship with your Landlord, he or she may be willing to work with you to find a solution that benefits both parties.
For example, your Landlord may be willing to let you out of your lease early if you find a replacement tenant. The Landlord may also be willing to lower your rent for the remainder of the lease term.
Attempt to Terminate Lease Due to Breaches by Landlord
If the Landlord breaches its obligations under the lease, you may be able to terminate the lease early. Unfortunately, most commercial leases in Ontario do not contain a section listing what actions constitute a default for the Landlord and the tenant’s remedies in the event of such defaults. In such an instance, the tenant may be able to rely on common law remedies or remedies that may otherwise be found in legislation. If the tenant relies on common law remedies, it is likely the tenant will only be able to break the lease early if the Landlord seriously/ fundamentally breaches its obligations under the lease.
Sublease or Assignment of Lease
Another way to get out of your commercial lease is to sublet the space or assign the lease to another party. This means that you would find someone else to take over the lease agreement and be responsible for paying rent. This is often the best and most feasible way to terminate or get out of a lease prior to the end of its term. Note, however, that landlords have the right to approve or deny any sublease or assignment of the lease agreement under most leases. The Landlord must have a legitimate reason for denying the sublease or assignment, such as the new tenant not meeting credit requirements.
In addition, the lease also often contains provisions keeping the tenant liable for any defaults by the sub-tenant or assignee until the lease is terminated. Where the lease is being sub-let, there is not much the tenant can do about it. In the event of an assignment, however, the tenant should request that the Landlord release the tenant on assignment of the lease to the new tenant. If you’re considering subletting or assigning your lease, review your lease agreement carefully first. You should also consult with an experienced business lawyer to understand your rights and obligations under the lease agreement.
Breaking a commercial lease can be a complicated legal process, and it’s essential to understand your rights and obligations under your lease agreement before taking any action. Ladislav Beganyi can help you navigate the complexities of commercial leasing law and advise you on the best action to take to protect your interests. At Beganyi Professional Corporation, we understand businesses’ challenges when trying to break a lease, and we’re here to help you through every step of the process. Contact us today to schedule a free consultation.