Fulfilling Lease Obligations for Struggling Tenants

Small businesses struggling in this economic environment face many daily decisions about how to keep their dream of owning their own business alive. Many are able to weather economic downturns and make it through to better times. For many unfortunate businesses that have exhausted all avenues available to them to get through the tough times, the hardest decision is one of “should I just close down and walk away”?

There are many obstacles that come with closing down a business. The single biggest problem small business owner faces when deciding to close down is what to do about their obligation to the Landlord based on the amount of time left on their lease.

In most cases, Tenants do have a few options when considering “closing down” and vacating a space, depending on what is written in their lease. These options could include but may not be limited to:

Sell The Business – Many failing businesses still have value due to inventory, fixtures and tenant finish that has been constructed in the premises. Often times selling a business, even for the assets alone is better then simply walking away! Typically when a business sells, the landlord will either enter into a new lease with the buyer or accept a Lease Assignment to the buyer.

Lease Assignment – This would involve finding a buyer for your business or a replacement operator that might be able to run the business and fulfill the lease obligations. The landlord may or may not release the original tenant from liability depending on the financial strength, experience and ability of the Assignees to fulfill the lease obligations.

Sub-Lease The Space – A Lessee may have the right to sub-lease their space to another business. Usually this involves landlord approval and typically the lessee will still be on the lease and be liable if the sub-lessee fails to fulfill the lease obligations.

In most cases, a lessee/business owner should exhaust all avenues prior to “closing down” and defaulting on lease obligations. Leases typically have language incorporated in them to protect the landlord, however, the more informed the tenant is of his rights under the lease, the less painful it can be. Always seek legal counsel to help wade through the sometimes 30 or more page lease document and know your options!

photo credit: TheTruthAbout…