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What happens when a commercial lease is terminated early?

There are few certainties in business. Consolidation and dissolution are baked into the risk of entrepreneurship. Often, a business will close its doors and must decide what steps to take regarding a lease agreement. Even in today's virtual world, renting space remains one of the biggest expenses for many businesses.

If a company closes its doors while a long-term lease is in place, the tenant is liable for the remaining portion of the contract unless the lease agreement states otherwise. Pennsylvania law does not require landlords to mitigate losses by using commercially reasonable efforts to look for a new tenant. It is wise for renters to include such a clause when entering into a lease agreement.

A tenant may be able to terminate a commercial lease early or otherwise avoid liability in certain circumstances. These include:

  • Breach of contract - If the landlord commits a material breach of a contract, such as not maintaining the property in a state that complies with the implied warranty of habitability.
  • Modification - The property owner and lease holder agree to modify the length of the term
  • Assignment - Assignment occurs when party transfers the interest in a property to another party before the lease agreement expires.
  • Early termination agreement - Because landlords like to have their property rented, it may be possible to negotiate a lease termination in exchange for paying a portion of the amount due for the remainder of the lease term.

Whether you own commercial real estate or rent, it is important to understand your rights regarding early termination of a lease agreement before you enter into a contract. Consult with a knowledgeable real estate attorney who can protect your interests.

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