Ideally, planning for this situation should happen before you sign a lease, but here are some strategies if you need to move on before your lease ends.
If you lease space for your dance studio or store, there are many reasons you might want to terminate your lease before the end of its term. Hopefully, they’re positive ones, not that your company is unsuccessful. Perhaps your dancewear business has boomed, and you have an opportunity to move to a better space, with more room for storing inventory and setting up attractive sales floor displays and a pointe shoe fitting area. Maybe your store’s online sales are growing and you don’t need the same size (or type) of brick-and-mortar space on a main thoroughfare. Or what if your dance studio’s location isn’t well-situated—you took it despite limited parking and a long walk to public transportation—but now just the right place for you has opened up?
These are just a few of the scenarios that might trigger a decision to move. So how can you get out of your current lease? If you’ve personally signed the lease (or co-signed with your business so that you’re a guarantor), consider these options.
Face the issue.
A lease is a binding legal agreement. You can’t just walk away or simply stop paying the rent. If you do so, you’ve breached the agreement and can face serious consequences. These include:
- Acceleration of rent. Under the law in some states (New York, for example), there’s acceleration of payments, meaning the landlord can immediately demand all the rent due under the remainder of the lease.
- Damages. In all states, a landlord can sue for damages to cover not only the unpaid rent but also the landlord’s legal fees to recover it.
Look for escape clauses.
Review your lease to see whether there’s an easy way out. You may be permitted to walk away from your lease under certain conditions.
- Early termination clause. If your lease contains an early termination clause, you can leave before the completion of the lease term without any further obligation to the landlord for the balance of the rent. Typically, an early termination clause can be exercised only after a year or other specified period. What’s more, you usually must pay an additional amount, such as rent for one or several months.
- Co-tenancy clause. If your dancewear store is in a mall and the anchor store moves or closes, your lease may give you permission to cancel your lease (or at least reduce the rent).
- Exclusive-use clause. What would you do if one of your competitors moved into a building or mall near you? If you were assured in the lease that you would be the only tenant in the landlord’s property to sell dancewear or to have a dance studio, then the landlord has breached the lease and you have cause to seek damages or simply leave.
- Bailout clause. In some malls, you may be able to get a lease that specifies if you fail to reach a preset level of sales, you may be released from the lease.
- Sublet clause. If you want to move, check whether you can hand over your space obligations to the landlord—and the rent bill. Look for a sublet or assignment clause in your lease that lets you find a new tenant. Depending on rental demand, doing this may net you income—you can charge more than the amount of rent owed. But if demand is low and you’re lucky to find anyone who wants your space, you may be on the hook for part of the rent if the party subletting from you pays less than what you owe the landlord.
Work things out with your landlord.
Even if you don’t find any escape clause in your lease, you may still be able to find a way out by negotiating with your landlord. Here are some ideas:
- Your landlord may agree to let you out of the lease entirely if the real estate market is great. The landlord may be able to re-rent the space to a new tenant at a higher rental price and would be glad to see you go.
- Your landlord may permit you to sublet your space even if the lease doesn’t have a clause for subletting.
- Your landlord may allow you to cancel by paying some lump sum (called a “buyout”). This option may make sense if you’re close to the end of your lease term so the landlord wouldn’t be losing much (and may, in fact, do better by remodeling and then re-renting to a new tenant).
Even if the landlord can’t be convinced to let you leave before the end of your lease term, in most states there’s a legal obligation for the landlord to mitigate a tenant’s expenses for outstanding rent. The landlord must make reasonable efforts to re-rent the space, and after some period of time (depending on your location and other circumstances), you would no longer owe any rent.
The Bottom Line
Getting out of a lease usually isn’t a do-it-yourself activity, so it’s wise to work with a real estate attorney knowledgeable in commercial leases in your area. (If you co-own the business with someone, this is essential, because there are additional complications.) The legal fees you’ll pay a real estate attorney may be less than the rent you would otherwise continue to owe. What’s more, the attorney may be able to negotiate on your behalf better than you could on your own. Thinking ahead, it’s best, of course, to make sure there are escape clauses built into any lease before you sign it, so that your studio or store has the flexibility to adapt to changing business conditions or opportunities.
Barbara Weltman, an attorney and small-business expert, is the author of J.K. Lasser’s Small Business Taxes 2020: Your Complete Guide to a Better Bottom Line and publisher of Idea of the Day at BigIdeasForSmallBusiness.com.