Can a commercial property lease be broken if my new business fails?
Im curently looking to rent out a new small shop for my business they are wanting me to sign up for a three year lease which seems the norm. What is worrying me though is if my new venture should fail i will be stuck tied into this lease.
My question is that should my business fail will i still be responsible for paying the lease for the rest of the agreed term?
Would i better off setting up as a limited company to avoid this pitfall if things turn worse in this economic climate and my business fails.
Thankyou
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Tags: Commercial Lease, Economic Climate, New Business
rent property | , 6 Jun 10
By Steve D, June 7, 2010 @ 5:02 am
Talk to a lawyer to figure out which is the best method for protecting your personal assets (LLC, S-Corp, whatever), but if you sign as a sole proprietor, you will most likely be personally on the hook for the entire three years
By realtor.sailor, June 7, 2010 @ 11:00 am
The commercial market in many areas is like the residential market. You shuold be able to negotiate a favorable lease. If you can’t, yes form a corporation or LLC to limit your liabilities. Read your lease carefully. Some will hold you personally liable which won’t help you should you breach the terms of the lease.
realtor.sailor
By codysdoor, June 8, 2010 @ 7:47 am
Yes, if your business fails you’re still liable for the lease.
And re: an LLC… They’re still going to want you to *personally* guarantee it so it’s not like you could walk away from the lease and say “sorry suckers, go after the LLC”.
Just like if you rented a house and lost your job… you’re still liable to make those payments as you have a contract (legal and moral) to do so.
By Lightning, June 11, 2010 @ 5:09 am
In short……… yes – make sure you go through all details with a fine tooth comb. If you are a sole trader then the responsability for the rent is down to you – whether you are trading or not.
Also remember to negoiate and play hard ball to get the best price.
By Ed Atun, June 14, 2010 @ 8:44 am
You are smart to worry about this in advance. Do not sign the 3 year lease. That was “the norm” when business was booming and the future looked bright. It is important that you rent month-to-month, even if you have to pay a premium to do so. If the landlord fights you, it might be smart to walk away.
The LLC protects you from getting sued, but only if the landlord does not ask for a personal guarantee (and they will ask for one). SO just keep it sole proprietorship for now..
By Lily B Talus, June 15, 2010 @ 8:15 am
The bailliffs will come in so you wont have to pay…dont worry
By gafpromise, June 18, 2010 @ 2:29 am
Yes, you probably will. You could do a couple of things in that situation- find a subtenant to take over the lease, or find someone to buy out the business and then it will be their problem. most landlords are wary of this too. they want to see creditworthiness, financial statements, financing from the bank, etc.