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Barrister
Barrister, Lawyer
Category: Real Estate Law
Satisfied Customers: 33781
Experience:  15 years real estate, Realtor. Landlord 26 years
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I am a new start up small business owner. I am looking to

Customer Question

I am a new start up small business owner. I am looking to rent a retail location. The location was previously a drug store (moved to a different corner) who still has a long term lease and is looking for a sublease (me). The dollar amount has been worked out along with the term. There are two items that they are sticking to pretty hard. The first is that I would be responsible in full for HVAC. So out of the 3 parties involved, the actual owner, the drug store and now me the sublease.....why am I the one responsible for the HVAC? It is part due that I have negotiated a rate less than 50% annually of what they are currently paying, but then its been empty for two years, they have been unable to sub lease it. The second point of even more importance is I have no way out of a 5 year lease. They want a personal guarantee with no early termination clause. If this business does not work or make enough money then I would be responsible for the lease for 5 years. That would force me into bankruptcy. What are my options?
Submitted: 1 year ago.
Category: Real Estate Law
Expert:  Barrister replied 1 year ago.

Hello and welcome! My name is ***** ***** I will try my level best to help with your situation or get you to someone who can.

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You seem to lay out your situation and the logical examination of it pretty well...

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Did you have a specific legal question I can help with because it appears that you already know what they are requiring to enter into the tenancy with you?

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thanks

Barrister

Customer: replied 1 year ago.
Is it standard to not have an early termination clause? What is an good example of a clause I can add to protect myself? If there is no early termination clause am I in fact responsible personally for all 5 years of payments with no way out? If I cannot get an early termination agreement should I just walk away?
Expert:  Barrister replied 1 year ago.

In a commercial lease...yes. The landlord doesn't want to give the tenant an "out" so they can just pay some amount and walk away leaving the landlord to try and re-rent the property.

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You can negotiate the lease in any way you want to since it is a "living document" until you agree on fixed terms and both parties sign it.

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So if wanted to counter their offer with an early termination clause where you pay some amount as a lump sum up front to get out of the remainder of the lease, you can do so. There is nothing that would make them agree, but it would appear that they are just losing money each month so anything is better than nothing and you should be in a strong bargaining position with regard to refusing a personal guarantee and getting an early termination clause.

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If they won't meet your terms, you can tell them to simply continue to pay that rent and lose money each month.

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If they are faced with losing half their money each month or all their money, they would be foolish to not negotiate to get you in so as to cut that burn rate, even if they had to agree on concessions like no personal guarantee, and a buy out clause. You could offer them a bit more rent in return for no guarantee and a couple month's rent as a buy out fee.

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Agreeing to a personal guarantee pretty much kills the whole point of having a corporate entity to shield you from liability for the company debts. So these are always a horrible idea for the tenant unless they are desperate to rent and have to find a place.

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So as the potential tenant, they need you, you don't need them, and you should be dictating the terms of the lease up to a certain point.

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thanks

Barrister

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