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When is a lease buyout a good idea?

On Behalf of | Aug 17, 2021 | Business Law |

If you’re looking to get out of a commercial lease as a business owner, you may find that your landlord isn’t too keen on letting you out of it. Finding another tenant may be difficult and they were counting on that consistent income. They may decide that it’s not in their best interest to let you break the lease early.

If that is the case, perhaps a lease buyout is a possibility. This is when you and the landlord agree on a sum you can pay to leave the lease before the contract expires. It will ideally be less than you would owe if you simply stayed under that contract. For instance, if you have a year of payments coming up before the lease expires, the landlord may let you break it for six months’ worth of payments up front. This gives them six months to get someone else in the property before they’re actively losing money.

But is it a good idea for you? It may be if:

Your business is losing money at that location

Maybe the location looked great when you signed the deal, but you’re just not earning enough to cover expenses. You don’t want to keep losing money month after month, but you still believe in the company. Relocating, even if it’s expensive, is the only way to increase your revenue.

A new location offers vastly higher earnings

You may not be losing money at your current location, but what if a new location opened up where you’re sure you could double or triple your earnings? Perhaps it’s a location you considered before, but there was never an opening. It may be expensive to break that lease early, but you’ll quickly make back your losses.

You can significantly expand at another location

Your current space may mean that expansion is impossible, even though you have the potential customers to support it. For instance, perhaps you run a restaurant that always has a line around the block. Moving to a new location may give you a chance to really reach more people and thus earn more.

To determine if a lease buyout is right for you, you can consult an attorney and learn what legal steps to take if you decide to pursue this option.


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