"As a commercial real estate developer and attorney, I have negotiated well over 500 shopping center leases. Stu's understanding of the business and legal aspects of shopping center transactions enabled his client to ask the right questions, to obtain the items the client needed to run a profitable business and to negotiate a lease fair to both parties -- the hallmarks of a successful transaction."
OVER 35 YEARS OF HELPING CLIENTS TO:
LIMITING YOUR DAMAGES IF YOU DEFAULT - KEY THINGS TO KNOW
Sometimes the leased space you thought would be a winner for your business turns out to be a loser, and you have to shut it down even if it means defaulting on your lease. That can put you at risk of paying some big damages to the landlord. What could you have done during the negotiation of the lease to limit your exposure?
AMORTIZE THE LANDLORD'S COSTS: Typically the default provisions in a lease make the tenant responsible for all of the landlord's costs associated with securing a new tenant. But suppose the defaulting tenant had a five year lease and defaults after four years? In another year the landlord would have to find a new tenant anyway, and all at its own expense. Why should the lease require the defaulting tenant to pay 100% of this expense? Insist on having your lease properly amortize this expense, so that if only 20% of your lease term remains at the time of default you are responsible for 20% of the landlord's related expenses. And remember to make sure this also applies to repayment of the costs of any tenant improvements that the landlord paid for when you moved in.
REQUIRE MITIGATION: The law in most jurisdictions requires that an injured party has a duty to do what it can to minimize its resulting damages. So when a tenant vacates its space and stops paying rent before its lease expires, the landlord cannot just decide to leave the space vacant, let its damages mount, and then sue the tenant. The law requires the landlord to try to minimize its damages, which usually means trying to re-rent the space at a fair rental rate. Even though the law imposes this obligation on the landlord it is best to spell it out in the lease, and better yet to require that the landlord use its best efforts to bring in a new tenant as soon as possible and paying a then fair rent in the local market.
"For Professional Help With Your Lease"
With over 35 years of experience Stu Heller helps his clients make smarter business and leasing deals. His website is at www.theleasinglawyer.com and his office is located at 11400 SE 8th Street, Suite 260, Bellevue, WA 98004. He can be reached at 206-623-0579, fax 206-682-7972, firstname.lastname@example.org and email@example.com. Contact him for a free initial consultation. Be sure to consult your lawyer before applying any of the above to a particular situation.