6 Options for Terminating a Small Office Lease in Kansas City
An office space lease can be a big strain on a business during an economic rough patch, and it might be necessary to either terminate a lease or find another way to relinquish a space to save money. Here are a few options for a tenant to consider if a lease becomes too expensive, as outlined in the article “How to Say Goodbye – Exiting Leases”:
- Subletting. Rather than simply terminating a lease, a tenant might consider subletting part or all of an office space to reduce the burden of rent. Before subletting, it is important to clearly understand what the lease says about subletting. Often subletting involves getting the approval of the landlord, but be aware that some strict leases allow landlords to reject a subleasing tenant without having to give any reason for their failure to consent. Some landlords might also include a clause in a lease allowing them to recapture a space if a tenant plans to sublet it, even if you only want to sublet a portion of the space. If you are able to sublet, remember that you will most likely still be considered liable for the space, so be careful who you choose to sublet to.
- Assignment. Another similar option to subletting is assigning the lease to another business. This sidesteps the issue of terminating the lease, but it also means handing over the entire space and lease to a new tenant. As with subletting, make sure your lease allows it and know that most likely the landlord will most likely have the right to approve or reject the potential assignee. Sometimes leases prohibit assigning or even subletting a space to other tenants on the property, so be aware of who your options are.
- Buy-Out. Another option is to buy-out the remainder of the lease obligations, which would make for a more amicable form of lease termination. This possibility is important to address when crafting a lease. When negotiating, the tenant should try to make sure their only obligation is to deliver the leased space “as is” on move-out day. Also, try to negotiate certain releases, such as a release from guarantees. However, releases can be tricky because this might also affect the return of the security deposit or any reconciliations for CAM payments if the tenant overpaid.
- Restructuring. Another option less drastic than a buy-out is to talk to your landlord about the possibility of restructuring the lease, possibly to include a shorter lease term.
- Defaulting. On the surface, this is the simplest option for a tenant who can no longer afford the lease, but this route is fraught with costs and liabilities, such as losing the security deposit or having to pay other fees. This also is a bad option if you have a substantial personal guarantee included in your lease, or if you have a lot of time left in your lease term and will be required to continue paying rent for a substantial amount of time.
- Constructive Eviction. This route is fairly uncommon, but in some cases it is possible to claim constructive eviction to be able to leave the space. In order to invoke this right, a tenant must prove that the landlord somehow interfered with the promised use of the property, depriving the tenant of the enjoyment or beneficial usage of the space. Some examples of actions that could lead to this possibility include a landlord failing to heat a space, provide electricity, or maintain certain things such as elevator functionality or sanitary conditions. In some cases, a tenant might be able to cite the actions of another tenant on the property if they were directly caused or sanctioned by the landlord. In the event that a tenant gets a constructive eviction, they are no longer able to use the premises at all and typically must leave pretty soon after the eviction is granted.
These options are important to be aware of not only if you need to terminate a lease, but also if you are beginning negotiations for a new lease and want to outline your options for exiting.