Even with a well-written lease, landlords may have to confront situations where tenants try to evade their legal obligations. In the event of a recession, there will be a greater risk of this happening.
Leases and termination
The terms of a commercial real estate lease play a major role in compliance and whether tenants will evade its requirements. Commercial leases usually favor landlords and have provisions that make them difficult to break. But tenants may also have rights to terminate a lease under conditions contained in the lease.
A lease may also become impossible to perform. This could occur, for example, if a locality passes an ordinance outlawing the operation of the only business allowed under the lease.
This could constitute impossibility of performance and an avenue to escape the lease. Landlords can escape this risk by not restricting tenants to a single use.
A straightforward way to evade a lease is to simply break it. But rents and legal costs will continue to accumulate until the space is rented to someone else and the back rent is caught up.
Tenants may also try to enter a sublease with another tenant. However, landlords usually possess the right to reject a sublease under the terms of the lease. No law requires that landlords allow subletting.
Assignment is the most common and simplest way to get out of a lease. Business brokers and real estate agents can assist tenants with assignments.
Landlords, such as owners of shopping centers, have an interest in the success of their tenants. The success of one tenant helps assure the profitability of other retail tenants.
If one tenant is undergoing difficulties, landlords may seek another tenant that will be successful and bring in business. Under these circumstances, a tenant that is having difficulty finding a suitable replacement may assign the lease to a new business and permit it to take over that commercial space.
In contrast to the situation with subletting, the landlord usually has no choice but to agree to an assignment. Under Tennessee law, landlords can generally reject an assignment only if they have a “commercially reasonable basis” to reject that assignment.
An example would be business saturation in that location.
Attorneys can assist landlords by drafting well-constructed leases that addresses business conditions. They can also represent their interests in disputes.