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Can a Landlord Break a Commercial Lease?

Published: 10-01-24 Category: Leasing/Renting

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A commercial lease exists for the same reason as many other leases: It defines the relationship between a landlord and tenant in detail. It's a binding contract that, together with standard terms and clauses, provides stability for both parties.

However, a landlord may consider terminating or “breaking” a commercial lease for various reasons. For example, if a tenant is having difficulties paying the rent or violating the lease terms, a landlord may consider a lease termination.

In addition, there are lesser-known reasons for a commercial lease termination, even when a tenant is adhering to its terms.

We'll begin by reviewing the most common trigger for a landlord to terminate a lease: when a tenant defaults on rent and/or other payments.

Tenant Defaults

“Tenant default” describes a situation when a tenant cannot, or chooses not to, fulfill their obligations as outlined in the lease.

Examples of tenant default include:

Non-payment of monthly rent or chronically late rental payments.
Violation of a lease's terms or clauses. While these depend on the type of space leased, unauthorized subletting is a typical example.
Failure to maintain the required insurance coverage as outlined in the lease (these and similar costs are often included in a commercial triple-net or NNN lease).
Improper use of the premises. These may affect other tenants, such as improper disposal of hazardous materials or unauthorized visitors.

In most cases, the landlord is legally obligated to give the tenant a written notice of default. Some landlords offer alternatives, such as an extended rent payment deadline, rather than evict the tenant.

Another reason for lease termination is the property's owner's decision to begin renovations or similar construction work.

Lease Redevelopment Clauses

Some commercial leases, particularly those for older buildings or in areas undergoing significant development, may include a redevelopment clause.

This clause allows the landlord or property owner to terminate the lease if they decide to renovate or redevelop the property before its term ends.

Landlords are usually required to give tenants a six- to 12-month notice period, and tenants may also be compensated for their relocation expenses.

If you're aware of future developments scheduled for the area, ask the landlord if this clause will be in your lease.

The next possible termination clause tends to apply almost entirely to retail business tenants. It may provide solutions for falling profits.

Here's how it works.

Co-Tenancy Clauses in Detail

Co-tenancy clauses often play a crucial role in lease agreements in retail settings, particularly shopping centers and malls.

When a co-tenancy clause is included in a lease, tenants may have more than one option.

Typically, a co-tenancy clause gives tenants the right to vacate early without penalty if a key anchor tenant, such as a larger retailer, departs. This clause also allows tenants to leave if the area's overall occupancy falls below a certain threshold.

Tenants may also have the option to stay in exchange for a lower rent rate. This may be attractive if another popular anchor tenant plans to set up shop nearby, increasing foot traffic.

The following are less common reasons for a landlord to break a lease, as they're unrelated to the tenant's adherence to its terms.

Catastrophic Events

Most commercial leases include verbiage that describes possible outcomes if the property is damaged or destroyed by a natural disaster, such as a hurricane or wildfire.

If a catastrophic event makes leased spaces uninhabitable, the landlord may decide to terminate the lease. The circumstances that could cause this are typically described in the original lease.

For example, suppose a hurricane damages a retail area on the Florida coast. In that case, landlords will need to determine the extent of the damage, the estimated repair time (if possible), and whether tenants can occupy the property during repairs.

Another “no-fault” possibility for a broken commercial lease may be caused by state or city planning.

Eminent Domain Claims

If a city or state is funding a major public project, such as a new highway, hospital, or water management system, it may need to acquire one or more commercial buildings to make room for the project.

While commercial property owners may sell to a city or state entity, they may discover that they have little say in the manner, as eminent domain (also known as condemnation) laws may apply.

Depending on the project details, the building may undergo extensive renovations or be demolished.

This means that the building's landlord may have to revise or terminate the leases of any tenants whose original lease term will be cut short by the public project's start.

If you're wondering if tenants have any legal recourse if and when their lease is terminated ahead of time, here are their possible options.

Legal Considerations and Procedures

Responsible landlords and commercial property owners must research state and local law before breaking a commercial lease.

These laws generally protect commercial tenants against unfair lease terminations.

When considering lease termination, legal specialists advise landlords to:

Ensure compliance with all notice requirements specified by law.
Document all communications and actions related to the lease termination.
Consider the possibility of legal and financial consequences, including possible lawsuits for wrongful eviction or breach of contract.
Consider alternatives to terminating a lease if possible.

However, it's equally important to research your state and/or city codes that apply to commercial tenancy.

State-Specific Variations

Specific procedures for commercial lease termination may vary significantly, depending on your state.

Here are some examples:

Some states require landlords to mitigate damages by actively seeking new tenants if they terminate a lease early.
Notice periods for lease termination can vary from 3 to 90 days or more, depending on the state and the reason for termination.
Certain states have specific protections for commercial tenants, particularly small businesses, that may limit a landlord's ability to terminate leases.