With the sharp rise in remote work, commercial tenants may have a growing interest in abandoning the traditional office. But what happens if you walk away from a commercial lease depends on the circumstances.
Chapter 704 of Wisconsin’s statutes governs commercial landlord and tenant matters. Tenants who walk away from a commercial lease may have to pay some or all the remaining rent due. Moreover, tenants may have to pay the landlord for advertising costs to re-list the property. If the landlord secures another tenant, the old tenant may be responsible for covering the difference.
What Are the Consequences of Walking Away from a Commercial Lease?
Commercial leases, like residential, are binding contracts. Walking away from a commercial lease before the contract expires may come with consequences. We’ll explore some of those consequences here. Next, we’ll talk about situations where a tenant might walk away from a commercial lease.
Tenants May be Responsible for Paying Rent Due Under Contract
Tenants who walk away from a commercial lease may have to pay the rent due under the lease. If the landlord finds a new commercial tenant at a lower rate, then the tenant may have to cover the difference. For example, if the tenant owes $5,000 per month for one year, and the new tenant pays $4,500 per month for five years, the tenant may have to pay $500 a month for one year. The tenant may have to pay this amount upfront, depending on how the parties resolve the dispute.
Covering Landlord’s Costs to Acquire a New Tenant
The tenant may have to reimburse the landlord for advertising or listing costs for them to find another tenant.
Forfeiting Security Deposit and Paying Landlord Other Contractual Damages
By walking away from or breaking a lease, the tenant may forfeit the security deposit. The lease’s terms and contract law principles may require the tenant to pay additional sums. These sums will typically be offset by the measures taken by the landlord to limit their damages.
Are There Situations Where It’s OK to Walk Away from a Commercial Lease?
Walking away from a commercial lease can have significant financial consequences. However, there are some circumstances where you may be able to get out of your lease. Even if you think one of these might apply to you, it’s best to consult with an attorney before breaking your lease.
Business Tenant Terminates Commercial Lease Early with Agreement of the Landlord?
If you and your landlord reach an agreement about terminating the lease early, putting it in writing is a safe bet. To terminate a commercial lease more than one year before the normal expiration date, Wis. Stat. § 704.03(4) requires a signed agreement. If there is none, then the tenant may be in breach of the lease. An exception might apply if the tenant can prove that the landlord gave the tenant permission to breach early, even if the agreement did not get put in writing.
Commercial Property Is Untenantable
Wis. Stat. § 704.07(4) provides a commercial tenant with a way to move out of the premises if the property becomes untenantable. Property is “untenantable” if it is damaged by fire or it poses a health hazard.
In this case, the commercial tenant may not be liable for a portion of rent due “after the property became untenantable.” If the tenant’s actions or inaction cause or contribute to the property’s condition, the tenant may have to compensate the landlord. Compensation may include reimbursing the landlord to repair the property or payment of rent due under the lease.
Walking Away from a Commercial Lease as a Periodic Tenant
Periodic tenants pay a landlord rent to use the commercial property but do not have a valid lease. The lease may be invalid because, for example, it isn’t in writing or it’s missing key terms. The past conduct of the parties typically determines the amount of rent due and when. Likewise, the situation would determine the length of the lease or tenancy.
Walking away from a commercial lease in Wisconsin if you’re a periodic tenant is similar to what it would be for other types of leases. Wis. Stat. § 704.19 requires periodic tenants to notify their landlord that they are terminating the lease by either:
- Signing an agreement; or
- Using other means to establish the intent to end the lease.
Wisconsin’s law requires that periodic tenants give this notice at the end of the rental term. If the property is untenantable, however, then the periodic tenant may move out. The tenant may not have to pay rent after the time that the property becomes untenantable.
Before Walking Away from a Commercial Lease, Call Mallery, s.c.
At Mallery, s.c., we understand what business owners like you face every day and what you care about. Our team of accomplished and disciplined attorneys provides personalized client service delivery tailored for you. We leverage our small firm style to provide you with quality legal counsel that you can trust. Call us today.