10yr lease: What clause will allow Renter early exit?

Question

I'm the renter of a commercial retail property in Colorado.  I've been offered a 10yr lease at $18k/yr.  Landlords in CO are required to make effort to re-let property.   I don't want to assume excessive risk as I'm 55 and life could change unexpectedly.

What clauses can I suggest to protect myself if I need to exit due to health, change of business, other unplanned event, etc.  Don't assume bankruptcy or anything extreme.  I have highly speculative investments which could bring large returns and financial freedom, or go to zero in the next few years.  While the odds of that may be low, it would mean I'm much less interested in continuing the business.

One of my concerns is if they rent the space for 1 year after I leave and then come after me again for remaining balance ad-ifinitum up to the 10 yr term.  Am I off the hook as soon as they rent it to the first person even if they default or leave after a 1yr lease?  Otherwise, all I would need is photo evidence that there is a new tenant, and I am free from the contract.

Assume a new renter would NOT pay less rent, I have a good deal on rent and it's good sized, good location, I think the landlord might even be happy that I would leave in order to collect more rent. However it's a small tourist town and the seasons are fickle with respect to local conditions, so there is a chance it would be difficult to rent, it's hard to estimate. The last few season have been very difficult there due to temporary conditions covid,etc. If I had to pay 1 yr rent after leaving, it would not break me.

The current lease states "subletters must be approved by landlord"

I'll confirm there is something with respect to the habitability of the building due to disaster.  A doctor in NY was on the hook for 7yrs even after the building burned down and was not rebuilt,  due to a bad clause.

FROM COLORADO State Website:

"Early Move-Out
When tenants move out before the end of their lease term, they remain responsible for rent until
the property is re-rented or until the lease has expired, unless they have another agreement with
the landlord. However, a landlord cannot just sit by and collect rent but must make a reasonable
effort to re-rent the property. The tenant may also be responsible for the landlord’s reasonable
costs of re-renting, such as advertising, and many leases include a clause to that effect. If the
landlord has to accept a lower rental amount in order to occupy the property, the tenant may be
responsible for the difference between the old and new rent."
"
Futher info by a CO law firm:

https://frascona.com/landlords...

Nathan Gesner · Answer

As you already stated, Colorado law requires the Landlord to make an attempt to place a new tenant and you are only responsible for rent up until the new renter takes over. They can't continue charging you rent while also collecting rent from another occupant; that is illegal.

Talk to the Landlord about options. If subleasing is an option, have him put something in writing so you're protected if the situation arises.

Evan Polaski · Answer

@David Williams, when I owned a retail business and leased space, I preferred shorter terms with fixed renewal options. Mine happened to be 2yr term, with 2x 2 yr extensions at fixed amounts.  All I had to do was notify landlord I wished to extend per the renewal option, and I had another two years.  This allowed me the right to leave after each 2 year period with no further obligation, while also knowing I had a guaranteed space for 6 yrs if I wanted it.

Nathan Gesner · Answer

If you're that uncertain about your future, I wouldn't sign a 10-year lease.

Christian Decker · Answer

@David Williams

The 6% is not attorney fees. That’s if they use commercial brokers. It may be different where you are but that’s what I budget for brokers on my properties.

Christian Decker · Answer

@David Williams

You can always ask! It is a very reasonable question and fairly expected.

They likely want the 10 year lease because that adds value to the building. You can get a better rate on the loan when there are longer term leases.

Don’t be discouraged if the landlord pushes back on an early termination. Remember, they will likely pay around 6% in releasing fees plus $20-$50/sf in tenant improvements (market dependent). Not counting lost rent.

Frank Hinck · Answer

@David Williams

Do a 5 with a tenant option for another 5.   Allow subletting.   If you break it you’re on the hook until they sign a new tenant then after a new one signs your off the hook.

Christian Decker · Answer

Hi David, there is a lot in there!Background on me and where I am getting my information. I am a Commercial Broker that does leasing for Retail and Office (along with sales, but that's not applicable here) in the greater Seattle Area. I also own multiple retail and office buildings in the greater Seattle area. Please also note that I am not an attorney and not giving legal advice.

Now with that all said lets get into your questions. First, everything in real estate, especially commercial, is negociable. Contact an attorney that does commercial leases to represent you and to have review the lease. They will be able to answer your question the best and you will have someone to represent you if things go sideways. Second, contract a commercial broker in the area and get a market overview (they will do this for free). It will give you an idea of what is "Market Rent" and that you truly are getting the deal you want. In Seattle, 10 year leases are actually fairly common (I signed one very recently with a client). In addition, you might be getting the best deal possible now and want to lock that in for 10 years. Naturally it depends on what other bumps you have built into the lease. Is this a brand new lease or an option to extend?

If you are looking for a right to vacate there are a few options. 1 is to have an early termination clause, second is the right to sublease, and third is right to go dark. There are many other ways to do it but these are the most common. An early termination clause typically states that you have the right to terminate/break the lease and walk away, typically with 180 day notice and a fee of 3 to 6 months of rent. They can be spread out with an option at years 3, 5 and 7 with varying costs to break the lease. Second option is subleasing which I saw you mention. With a sublease you are still responsible for the base rent. In addition, some leases state that if you are able to get more for the space, you owe the landlord the increased full amount. Finally, if the sublessee damages the space or disappears, you are still responsible for the lease and returning the property in the condition specified in the lease. Third is the right to go dark. My retail leases specifically say that a tenant is not allowed to go dark. This is for the synergy of the center. Be careful with that. Now, I am not an attorney nor am I in Colorado, talk with an attorney or local commercial broker for local and legal advice. I know this is a lot of information, let me know if you have additional questions and I will help as I can! An opportunity to take a 10 year lease at below market rate is a very good opportunity!

Thanks!

Bjorn Ahlblad · Answer

@David Williams It would be very odd for you to continue to be on the hook once a new tenant has moved in. As a LL I certainly would not have that kind of hold on any tenant; but 10 years is long time. Unless I were Jiffy Lube or McDonald's I would not be tying things up for that long. When I was a tenant business owner the longest lease I signed was 5 years.

Another avenue for you and/or the LL to explore is rent guarantee insurance; not perfect but it might be a compromise. There was a post about that here in the past 60 days as I recall. You might be able to search for it. All the best!

Tracy Streich · Answer

@David Williams Commercial laws may be different.   10 years is a long time.   Commercial space available Everywhere right now.   I would take a pause on that.

David Williams · Answer

Thanks David.  I'm proposing changes to the new lease, as it would transfer in a potential building sale.  It currently says if I default, and property is re-let, they can come after me for any difference in rent through the remainder of lease (say 5 years).  As unlikely as it is, that leaves it open for them to rent it out to a friend for half the rent and expect me to pay the balance.  Do they need to remove that to be fair?  I'm searching CO law, but want to stay amicable and not have tension in the relationship as there is a lot of good will currently.  What are your thoughts on this? Thanks!

10yr lease: What clause will allow Renter early exit?

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