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So you're in a commercial lease, and want to get out? Negotiating a commercial lease buyout can be tricky, but you have come to the right place for some guidance!
A commercial lease buyout refers to when a tenant pays a landlord an agreed upon sum in order to end the lease before the actual lease expiration date.
The buyout can either be stated in a clause in the lease or it can be negotiated at the time of its request (just because you may not have a right within the lease, does not mean the landlord is unwilling to co-operate).
A buyout is often the more expensive option in comparison to other ways of getting out of a lease.
Even if the agreed upon buyout amount is quite large, the landlord is often still left losing money and therefore may not be willing to negotiate the buyout. Their willingness to agree to a negotiate also depends greatly on the state of the market at the time (if the current fair market rent his higher than what you are paying, then the landlord should be willing to play ball).
When looking to negotiate a commercial lease buyout, it is vital that you have some degree of knowledge of the market at the time in order to ensure you are not over or under-paying the landlord.
This is due to the fact that market conditions have a great influence on the value of the lease buyout.
Depending on the market supply and demand as well as economic standing, the lease buyout will differ in rate.
There are few things that you must ensure are included in the negotiation of the lease buyout. This includes the termination date, the penalty agreed upon, any obligations the tenant may have, and the condition the space is to be left in at termination.
There is a general method used to calculate the sum that the tenant is required to pay the landlord. It is calculated based on the following components
The sum does not need to include all of those aspects but rather it can just be one or a combination of a few.
This calculated price ends up actually being less than the value of the remaining lease payments. This amount will not always cover the amount the landlord is losing due to vacancy and is therefore often not desirable for the landlord.
If the economy is strong, the tenant will often end up paying 50 cents on the dollar. If the economy is not as strong, the tenant will end up paying almost the entire remaining rent payments with a slight discount.
As an example for where the value of the buyout can sit, in New York City, a location on the high end of the scale, buyouts can start at $50,000 and go over $1 million.
Good luck negotiating your commercial lease buyout. While we do not get involved in negotiating leases on behalf of clients (we simply educate so our clients can negotiate their own leases), we do provide opinions on how favorable leases are. We are fast and detailed - as you can see from what our clients say about us here.