Principal Attorney
Commercial leases govern the relationship between a property owner and a business leasing space for its operations. One of the most critical terms in commercial leases is the grounds by which one or either party may terminate the lease. Parties may agree to various provisions that entitle the landlord or tenant to end the lease before its expiration date. Establishing grounds for terminating a commercial lease protects both parties’ interests, including allowing a landlord to protect their property and financial interests and protecting a tenant from an unexpected or arbitrary termination of their lease. Here’s a closer look at some possible grounds for a commercial lessor or lessee to terminate a lease.
Breach of Lease
A landlord or tenant may terminate a commercial lease if the other party breaches its terms. For example, a landlord may terminate for breach of lease due to a tenant’s failure to pay rent, unauthorized alterations, or usage of the property for unauthorized purposes. A tenant might seek to terminate its lease due to the landlord’s breach of clauses such as maintenance or repair obligations.
Nonpayment of Rent
One of the most common reasons why commercial landlords terminate leases is tenants’ failure to pay rent. However, terminating a lease for nonpayment of rent frequently involves a complex process. Many commercial leases include notice and grace periods for rent payment, which require the landlord to notify the tenant about their failure to pay rent and offer a grace period to make up their late rent payments before the landlord can initiate eviction proceedings. In many cases, a landlord may have to pursue court action to secure the tenant’s eviction and to recover outstanding unpaid rent.
Unlawful Activities
Landlords frequently have the right to terminate a tenant’s commercial lease if they discover the tenant has used the property for unlawful activities, ranging from illegal manufacturing, distribution, or sale of goods to illicit activities like gambling or drug sales. A tenant’s unlawful activities usually give the landlord the right to terminate the lease and pursue the tenant’s eviction immediately.
Violation of Zoning Laws or Building Codes
A landlord might pursue a commercial lease termination if it discovers that a tenant has modified or used the property in a manner that violates state or local building codes or zoning laws. Depending on the nature of the violation, the lease may require the landlord to provide the tenant with an opportunity to address the violation, such as removing an offending alteration or otherwise repairing the property to bring it up to code.
Property Damage
Landlords may seek to terminate a commercial lease due to the tenant’s damage to the property or neglect of their maintenance or repair obligations. Tenant damage requiring lease termination typically rises to the level of significant fire or smoke damage, flooding from plumbing, or structural damage.
Mutual Agreement
Landlords and tenants can agree to amend their lease agreement to facilitate an early termination of the lease when they agree that continuing the relationship has become impractical.
Other Common Grounds for Termination
Other reasons why a landlord or tenant might seek to terminate a commercial lease include:
- Business Closure or Relocation – When a tenant must relocate or cease operations, their lease may give them the right to seek an early termination subject to various conditions, such as notice to the landlord or paying an early termination fee.
- Vacancy Rules – In multi-unit commercial properties such as shopping centers, tenants may negotiate the right to terminate the lease if the center’s vacancy rate hits a certain threshold, which helps the tenant avoid getting stuck in a “dead mall.”
- Eminent Domain – Tenants can terminate the lease when the government acquires the property through eminent domain.
- Sale of the Property – A commercial lease may give the tenant the right to terminate the lease if the landlord sells the property to another party.
- Force Majeure – A lease’s force majeure clause can give either party the right to terminate the lease if their continued performance becomes impractical due to natural disasters, destruction of the property, or other unforeseen events beyond the parties’ control.
Contact a Commercial Real Estate Lawyer Today
When you have grounds to pursue termination of your commercial lease, you need experienced legal representation to help you protect and advocate for your rights and interests. Contact Sul Lee Law Firm PLLC today for a confidential consultation with a knowledgeable Dallas commercial real estate attorney.