Thu 30 Oct 2008
Lease Termination Clauses
Posted by Megan Dorn under Small Business
Leases are long and confusing, and important clauses can also sometimes be hidden. Tenants often feel the urge to breeze through the fine print and sign on the dotted line. I know I’ve been guilty of it a time or two. But a lease is a legally binding contract, and it shouldn’t be taken lightly.
One area where tenants should pay particular attention is the termination clause, which varies from lease to lease. Some leases can be automatically terminated at the end of their term, while others may be automatically renewed. You may also have to let your landlord know well in advance that you don’t plan to renew, or you might be forced to renew anyway. So be sure to carefully read the termination clause and fully understand what is required of you.
Early termination clauses give tenants the ability to relieve themselves of some or all of their lease obligations before the expiration date of their lease. Rarely do major changes happen to neatly and conveniently coincide with the end of a lease term, particularly in business, so having and understanding an early termination clause is important. It can also sometimes be tricky. Typically a tenant is required to give a written notice on a certain date or within a certain period in order to get out of the lease, but provisions vary from landlord to landlord. If the early termination clause is in any way unclear or leaves you with questions, talk to your landlord, get everything straightened out and then get it in writing.
It’s also smart to consult a lawyer to make sure that your best interests are being addressed. Small business owners and entrepreneurs in particular should make sure that an early termination clause is included in their lease. You don’t want to be held liable to pay the remainder of your lease if the business is not successful or if your company is acquired by another business. Many times a small business can negotiate a termination payment that allows tenants to get out of their lease early. This can be a good way to entice the leaser to agree to the termination clause since they will still receive some additional money for their willingness to terminate.
