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Terminating a commercial lease

On Behalf of | May 10, 2024 | Real Estate |

Typically, commercial leases are hard to terminate. New York law does not require commercial landlords to mitigate damages when a tenant terminates the lease early.

This law may seem strict. However, if you are a commercial tenant, there might be some situations that allow you to terminate your lease early while avoiding penalties.

Negotiating with your landlord

You can always try to negotiate an early termination date with your landlord. If your leased space is in a popular area and other tenants have expressed interest in it, your landlord might be inclined to negotiate terms for early termination.

Landlords often have an interest in allowing tenants to terminate early in this type of situation. They have the potential to re-rent the space to another tenant at a better rate.

Negotiations for early lease termination may involve a lease buyout. This involves a tenant paying a landlord one lump sum to terminate the lease early. As a tenant, before you agree to this, you should review various factors, such as the time remaining on the lease.

Check the terms of your lease carefully to see if there are any provisions that would allow you to transfer the space to another tenant.

Deed of surrender

If you and your landlord agree on an early termination, it is best to have a deed of surrender drafted. This is a document that specifically states that you are released from all obligations under the lease. This document should be carefully drafted to make sure it is in compliance with New York law.

The best way to prevent this type of situation is to include certain clauses in your commercial lease agreement that address the potential need to terminate the lease early.

Some common examples are a bailout clause which allows a commercial tenant to leave if their sales fall below a certain number or a co-tenancy clause, which allows for lease termination if a larger tenant leaves.