Terminating a NYC office lease early is very difficult. This is one reason that it is essential to consult an experienced NYC commercial lease attorney BEFORE signing a commercial lease. Landlords are in the business of making money through the rental of their buildings and property. As one can imagine, commercial leases generally do not allow a tenant to terminate the lease agreement early. However, there are some options that may depend entirely on the lease that has been signed and on the factual circumstances. Let’s take a look at some potential options.
Just “walking away” or filing for bankruptcy
Generally speaking, when terminating an NYC lease- just “walking away” from a lease or filing for bankruptcy are only viable options if the tenant is a corporate entity, has minimal assets, and the company’s owners do not personally guarantee the lease. If the tenant/lessee ceases to pay rent and comply with other lease obligations, the landlord will sue to recover money damages in court. Further, the landlord will likely win the case. The money judgment will often be the full amount of rent due under the lease for the remainder of the lease term.
However, if the money judgment is against a corporate entity with little or no assets, the landlord cannot collect on the judgment.
Of course, landlords are well aware of this, so almost every landlord requires a personal guaranty from owners of a corporate tenant or other forms of security (like a guarantee from an affiliated corporation). If a personal guarantee is signed, then the judgment against a corporate entity can be collected from the assets of the company’s owners. The same is true for putting a corporate tenant into bankruptcy.
Assignment or finding a sub-tenant
Assignment of a lease to another tenant or finding a sub-tenant can sometimes be an option. This will depend on the lease and the landlord. Many NYC commercial leases prohibit the tenant from assigning the lease or turning the space over to a sub-tenant. When a commercial lease allows assignment or subletting, the lease will typically provide that the landlord must approve the assignment or the sublease agreement. This is reasonable given that landlords want reliable tenants with the financial wherewithal to make the rent payments and meet the other lease obligations. The other difficulty with an assignment or finding a sub-tenant is the fact that most NYC commercial leases will still hold the original tenant responsible for under the lease. That means that the original tenant is still legally liable if the assignee or sub-tenant defaults under the lease.
Negotiating an early termination or changes to the lease
Typically, a tenant that needs to terminate an NYC office lease will start with negotiations. Sometimes, this can be a good option if the tenant has a replacement tenant available, even if the lease prohibits assignment and/or subleasing. This can also be a good option if changes to the lease would alleviate whatever problems are causing the tenant to seek an early termination. Negotiations are options because landlords are in business; sometimes, the best business solution is a negotiated solution.
Anticipatory breach and suing the landlord for the landlord’s breach of the lease
Again, depending on the circumstance, another option is an anticipatory breach and suing the landlord for the landlord’s breach of the lease. The end result might be a judicial determination that the lease is no longer valid. In simple terms, if the landlord has defaulted on its obligation under the lease in a material way, the law allows a tenant to withhold compliance with its obligation under the lease and to sue the landlord for the landlord’s breach of the lease. Depending on the facts proven, a court could rule that the lease is no longer valid. However, this is a risky strategy, is time-consuming, and can be expensive.
Contact the NYC Commercial Lease Negotiators at Wright Law Firm NYC Today
For more information, call the experienced New York commercial lease and real estate attorneys at Wright Law Firm NYC. We provide commercial real estate legal services and legal services for the NYC business community. To schedule a consultation, contact our office by e-mail or call us at (212) 619-1500.