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When a business fails before the commercial lease ends

On Behalf of | Aug 11, 2021 | Commercial Leases

When a landlord signs a lease with a new tenant, that tenant becomes responsible for paying rent. It is common for commercial leases to last for three to five years.

However, businesses don’t always survive for as long as the owner may have hoped they would when they leased the property. What happens to a commercial lease when the business that signed the lease goes out of business?

Landlords and tenants can cooperate

Sometimes, the end of a business won’t result in a lease dispute. If the landlord understands the situation and agrees to let the commercial tenant leave the property or find someone to assume their lease, there may not need to be any conflict.

A business no longer in operation likely won’t have the resources to continue paying rent indefinitely. A landlord may benefit more from getting a new tenant now rather than trying to enforce the lease and letting the unit sit vacant. Provided that the parties can compromise, the early termination of the lease won’t necessarily lead to legal action.

What happens when landlords and tenants don’t agree about the next step?

If the landlord wants to demand repayment for the remainder of the lease, they may take their tenant to court. Sometimes, tenants may try to convince the court that the terms of the lease allow them to terminate it early. Other times, they might respond by filing for bankruptcy and dissolving the business.

Tenants who are unable to pay their leases and landlords trying to enforce a commercial lease will need to review the document before deciding what steps to take next. Learning more about commercial leases can help businesses and landlords handle rental disputes more effectively.