Breaking commercial leases

[Bruce W.]

With RadioShack intending to close 1100 stores, I began to wonder about the leaseholders on the affected property. In my residential real estate business, I am allowed by law to withhold a "reasonable" amount from the deposit to make up for lost rent while I am looking for another tenant. I typically cannot require payments to extend for the entire remaining term. What options exist for leaseholders of commercial property in cases where the lessee exits early?

[Paul Falbo]

Happens all the time.

If a tenant moves out (goes dark), ceases operations, etc., most landlords, and leases, consider that an event of default and must follow procedures to recapture the space.

Joel is correct. Look to the lease for landlord's options.

Basically, some tenants continue to pay rent, some don't. Some "buy-out" the remainder of the lease and turn over the space to landlord so that he can re-let. Some tenants find sub-tenants.

In some states, like Arizona, Landlords have to mitigate damages (try to lease out the space) and they have to sue for lost rents, costs to return the space to its original condition, and commissions to re-lease. Arizona is a self help state where the Landlord can "lock-out" a tenant after written notification of default. The other option is to go to court through a forcible detainer action, where the court is supposed to consider only the non-payment of rent in determining whether the Landlord can regain control of the space and its non-personal contents.

If a bankruptcy is filed, then Landlord's rights are severely cut as federal courts trump local statutes, and leases. Federal laws were changed a few years back because some closed retailers held onto the leaseholds for long periods of time through extensions granted by the bankruptcy courts. Now, I believe they have just 6 months to either accept or reject the lease. If the tenant does file BK, then they must pay rent from that time on, as long as they occupy the space.

It pays to monitor how your tenants are doing. Usually, late payment of rents is the first sign that the tenants sales are down and that the tenant is headed for default.