Legal Question in Real Estate Law in California

Re: Breaking A Lease

The answer to your questions depends on what your lease says. Your best course of action is to have an attorney review your lease and advise you of your options. Commercial leases can be as varied as snow flakes and, while California law governs many of the rights and obligations of landlords and tenants, many others are governed solely by the lease.

Re: Breaking A Lease

The landlord is 99% likely to be right. You can't simply walk away from the obligation of a lease because of personal or business hardship.

The 1% "wiggle room" consists of two remotely possible escape routes. First, there are isolated cases where courts have excused performance on contracts based upon 'hardship.' They are rare, and the hardship involved was more than in your case. The second possibility is that there is something in the lease itself that provides a reason to break it. Ordinary commercial leases, especially net leases and long-term leases, tend to have 'hell or high water' provisions that obligate the tenant to pay no matter what happens, but a sharp lawyer MIGHT be able to find a crack you can escape through.

Assuming as is more likely that you can't get out of the lease, what are your options? Here are a few.

(1) If the business is incorporated, and the lease is not personally guaranteed, put the business in bankruptcy.

(2) If the business is profitable, sell it.

(3) Find someone else to run the business.

(4) Do as the landlord suggests -- find an assignee or sublessee. Whether this is easy or impossible will depend on the current market for your type of space compared with the pricing of the remaining term of your lease. In general I think current rates will be higher than those prevailing two years ago, so you may have little trouble.

(5) Finally, if you just walk away, remember that the landlord has some obligation to make an effort to re-lease the property rather than just let the meter run on your lease. The obligation is not as strictly enforced with commercial leases as it is with residential leases, but the landlord can't just let the property sit vacant and refuse to do anything to cut his losses.

Finally, if you decide to close the business, keep in mind that there are other matters to attend to in addition to the lease....outstanding bills, customer relations, employees, taxes, etc.