When circumstances change unexpectedly, commercial landlords and commercial tenants may seek to terminate leases prematurely for a variety of reasons, often financial. However, if a landlord or tenant does not act with sound legal advice, he/she may risk significant legal liabilities. Legal issues that can arise in relation to terminating a lease include claims of breach of contract, wrongful eviction, conversion of personal property and more.
Most commercial property leases provide a commercial landlord with early termination rights in particular circumstances. Commonly, these early termination rights include the right to terminate a lease if a tenant fails to pay rent or if a tenant violates various provisions of the lease. It is important to comply with all conditions and requirements in your lease, including lease termination provisions. For example, lease termination provisions may provide notice and cure periods that must be honored before terminating the lease. These provisions often require written notice to other party in breach of the lease and an opportunity to cure such breach before terminating the lease. For example, if a tenant cures a monetary default by payment of late rent, within the notice and cure period provided for in the lease, the monetary default may not provide a basis for termination of the lease, and doing so could result in legal liability. Lease termination notices should be delivered in accordance with the terms of the lease, as well. It is important to consult with an attorney who can assure that you are in compliance with the contractual terms of the lease and with numerous legal requirements related to severing the landlord-tenant relationship, such as the requirement for providing the tenant with a demand for possession of the property before filing for an eviction.
A Tenant, who terminates a commercial lease without authorization provided for in the lease or without other legal justification, may face significant liability for wrongful termination and breach of the Lease. In addition to being responsible for all back rent accruing through the date of termination, some leases provide that the landlord may accelerate and charge the Tenant for all future rent that would have accrued through the lease term as well. Often wrongful terminations by a tenant will also result in the forfeiture of any abated rent previously offered by the Landlord, which may also become due and owing upon the termination. Prior to entering into a Lease, the Tenant should review the entire lease to determine the requirements and consequences for early termination of the lease. If possible, the Tenant should negotiate an early termination “break clause” that allows the tenant the option of an early termination under various circumstances.
A Landlord, who wrongfully terminates a lease, may likewise risk legal exposure for wrongful termination and breach of the lease. Where the termination is followed by removing the Tenant from the premises through a legal eviction proceeding or otherwise, the Landlord may further risk exposure for wrongful eviction and potential claims for conversion of the Tenant’s property where the property remains in the Leased Premises from which the Tenant was removed. Wrongful eviction could also arise where the Landlord lawfully terminates a Lease, but does something unlawful in the process of removing the Tenant from the Leased Premises. A Landlord should ensure that the Lease contemplates the possible need for early termination of the Lease and should consult with legal counsel before taking action to evict a tenant.
In a perfect world, a lease would address all of the possible issues that might arise between a landlord and tenant. On the ground in the real world, however, commercial leases often fail to address many of the actual circumstances that emerge over time. Landlords and Tenants are in the best legal position when they enter into a lease that clearly defines their rights leading up to and after termination of the Lease, and in seeking sound legal advice prior to exercising any Lease termination rights.
ARE LANDLORD SELF-HELP REMEDIES LEGAL?
When a commercial landlord must deal with a defaulting tenant, the inevitable aggravation can tempt a landlord to exercise “self-help” resolutions – like changing the locks – or otherwise removing the Tenant and his/her possession from the leased premises. Such “self-help” strategies often involve many legal issues and practical questions which can put a landlord at risk. In Georgia, the general rule is that self-help by a landlord in removing a Tenant from a leased property may only be pursued if explicitly permitted in a commercial Lease. Georgia does not recognize such self-help provisions in residential leases.
A commercial landlord’s self-help rights in a lease may only be exercised if such can be accomplished without force or a “breach of peace.” Georgia law does not explicitly define what constitutes a breach of peace, and as such, there is often an unforeseen element of significant risk associated with self-help evictions. Landlords can avoid the potential for liability in removing a tenant from leased property by consulting with an attorney and/or pursuing legal eviction proceedings.
WHAT HAPPENS TO A LEASE IF A TENANT FILES BANKRUPTCY?
The impact of a bankruptcy filing on a commercial lease will vary depending on the terms of the lease and the rights it grants to each party. However, Federal law allows a tenant who has filed bankruptcy to either assume or reject an unexpired lease within certain procedural and time limits. If the tenant assumes the lease, it remains in effect during and subsequent to the bankruptcy proceedings. A tenant in bankruptcy who assumes an unexpired lease is required to repair any outstanding defaults and satisfy all obligations spelled out by the lease.
Bankruptcy filings by a Tenant can make it more difficult and costly to evict a Tenant, and remedies to recover unpaid rent and expenses can be more limited. Cautious commercial landlords should act promptly on pre-bankruptcy defaults – and always with the advice of an experienced Atlanta commercial real estate attorney.
PRACTICAL CONSIDERATIONS
In Georgia, Landlords and Tenants should consider thoroughly the practical ramifications of a lease termination, in addition to the legal issues and consequences. In addition to the time and expense involved with litigation in court, termination of a lease involves the need to search for new tenants, the clean-up of the premises and removal of abandoned property, and possible new build-out requirements for the new tenant. For Tenants, lease termination can involve business relocation costs and possible forfeiture of lease incentives. A history of early lease termination may also affect a Tenant’s ability to lease other space as well. In order to avoid unnecessary legal consequences and better consider the practical ramifications of early termination of a lease, it is important to speak with a Georgia real estate attorney before taking action. The real estate attorneys at Hecht Walker, P.C. have a long history of advising and assisting commercial landlords and tenants in lease termination matters and are available to discuss your legal rights in the event you are considering early termination of a commercial lease.