Q: The pandemic’s quarantine period has shown me that I do not need all the square footage my company leases, but my lease still has several years left. Is there a way to reduce my space sooner?
A: Tenants have the most leverage when looking for new space, but you may have some options within the terms of your existing lease:
- Early Termination Clause: Some leases have clauses permitting termination before the expiration of the term if certain conditions are met, such as the passage of a defined number of years. Review your lease to see if it has an early termination clause, how you exercise a termination right, and whether there are requirements to exercise such right, such as a termination fee.
- Sublease: Nearly all leases have sublease clauses governing the subletting of all or part of the premises. You may be able to work with a broker and the landlord to find an acceptable subtenant to sublease part of your space for the remainder of your term.
- Automatic Renewal Terms: Some leases have total terms that last 10 or more years, but that are broken up into a series of shorter initial terms with automatic renewals unless either party notifies the other of its desire not to renew the lease. Review your lease to determine if it contains an automatic renewal term. If so, you may be in a position to send notice of termination to the landlord before the term automatically renews.
- Options to Extend: If your lease contains an option to extend that is coming up in a year or so, you may consider talking with the landlord now about extending the term but with less space.
- Negotiating Smaller Premises: If none of these options are available to you, but you know that you want to remain in your current location, albeit with less space, you can try to negotiate that with your landlord. In exchange for reduced square footage now, you agree to extend the term of the lease.
With the exception of the last point, all of these options are dependent on the terms of your lease. Read the relevant sections carefully and consult with an attorney to ensure that you comply with the requirements (e.g., notice deadlines, acceptable sublessees, etc.) and that there are no hidden traps in the lease (e.g., fees, landlord’s right to terminate in the event of certain subleasing, etc.).
Know the Law is a bi-weekly column sponsored by McLane Middleton, Professional Association. We invite your questions of business law. Questions and ideas for future columns should be emailed to [email protected]. Please note – Know the Law provides general legal information, not legal advice. We recommend that you consult a lawyer for guidance specific to your particular situation.