One or both of the parties to a lease of commercial or office space may want to sever the relationship prior to the end of the lease term. A tenant may want to terminate the tenancy, for example, because his business has grown since he first moved in and he requires larger quarters. A landlord may want to terminate the tenancy because there is a better prospective tenant available.
Tenant Wants To Leave
While leases normally provide for the landlord’s remedies in the event of early termination or abandonment, a tenant will try to reduce his potential liability. The landlord usually will want to avoid the delay entailed in seeking his remedies in court. Here, then, are some tips on what the landlord can do to protect his interests through an amicable arrangement with the tenant.
When a tenant requests cancellation of his office lease before its stated expiration date, he must be made to realize that he cannot take this step without incurring an expense. As soon as the building manager becomes aware of the situation, he should seek out a new tenant, first offering the space to other tenants in the building who may need more space than they now occupy.
When a new tenant has been lined up, the landlord should determine the cost of altering the space for the new tenant and the amount of time from the date when the old tenant vacates to the date when his successor will move in. The landlord and the outgoing tenant then sign an agreement for the tenant to pay a flat sum consideration for early termination, taking into account the cost of new alterations and any applicable re-renting commission. In other words, the outgoing tenant agrees to pay the rent, at the rate specified in his lease, for the period of vacancy, plus the cost to the landlord of securing a new tenant.
Landlord Wants To Terminate
The owner of the building may seek an early termination of a tenant’s lease because of the expansion requirements of another tenant in the same building or because of condemnation or for some other reason. Under such circumstances, the owner must expect to indemnify the tenant in some way. The following matters should be taken into consideration in arriving at a settlement with the tenant:
- The successor tenant’s rent may be at a higher rate than the rate paid by the outgoing tenant.
- The outgoing tenant may incur extra expenses because of the early termination.
- The owner may realize a profit on the alterations. Besides the cost of the allocable proportion of alterations required for re-renting the space to the new tenant, the landlord must also take into account the unexpired value of the changes attributable to the original tenant.
- If the new tenant is already leasing space in the building and needs more for expansion, the new lease assures his prolonged tenancy.