Penalties for Breaking Commercial Lease

yjun355 on 08/02/2020 - 11:34
Last edited 08/02/2020 - 12:46

We are looking to get commercial lease for the first time.

We came across this space where previous tenant wants to hand over remaining months (8 months). They are selling business (yoga studio) and we are interested in buying.

Going through contract it seems that there is just 1 month clause to landlord to vacate without any penalties.

Just curious if that sounds about right? I was under impression that commercial ones are really hard to break and have large penalties.

Would love some feedback from people who have signed up on commerical lease

Obviously, when we close to signing the deal, we wil be getting a professional to do the formalities. I was curious to get some input based on people's knowledge.

Financial

Comments

  • HighAndDry on 08/02/2020 - 11:39
    +2

    Going through contract it seems that there is just 1 month clause to landlord to vacate without any penalties.

    That sounds like a holding over clause after the fixed term of the lease has ended - at that point, that clause turns the lease into a month-to-month, where a month's notice to vacate is standard.

  • Daniel Plainview on 08/02/2020 - 12:41
    +2

    With all due respect but if you're looking to setup your own business and have a commercial lease MAYBE you should be seeking info on such important matters from sources other than OzB.

    • yjun355 on 08/02/2020 - 12:50
      +1

      Of course when we close to signing deal. I just wanted to get some advice on people who have signed commercial leases. We spoke to business buyer advocate but they mention their fees is $1000. So, makes sense to engage them when we negotiate a deal from seller. Otherwise, i will be paying $1000 per prospect :). Unless tha's how it works in commercial space.

    • pupdog on 08/02/2020 - 15:32
      +2

      Nikko, with all due respect, I think you underestimate the wisdom of the crowds that is Ozbargain.

  • Debuting on 08/02/2020 - 13:29
    +1

    You can setup your own business and buy the clients and the equipment. That would distance you from the old lease which you didn't enter into. Best to change the name slightly too.

    If it's just a 30 day notice to landlord to vacate without penalty then you might want to weigh up the benefits of that. The question is whether you want to renegotiate the lease from scratch or not. I think in this environment it is best to renegotiate since there is a historically large number of commerical properties which are empty. Just take a look around the suburb and see how many are empty, you can use that as leverage.

    Get quotes for nearby "vacated properties" if you can. Compare and make the decision.

    • Sofie519 on 08/02/2020 - 14:31

      Directors are usually named as guarantors to the lease so setting up a company does distance the obligation.

      • HighAndDry on 08/02/2020 - 19:30

        I assume you meant does not but yes, completely correct. Unless you're a national or larger lessee, or give something ridiculous as security (~6 months rent + outgoings), directors are almost always going to be guarantors.

        Of course, there are ways to practically get around this, but you'll have to pay for that haha.

  • elgrande on 08/02/2020 - 21:58

    If there is 8 months left on the lease then your break fee is probably 8 months rent ..

    Dont forget to factor in make good costs.

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