Business owners often “start small.” They may run a company from their home office before securing a lease. Other times, they may have one location and aspire to expand to multiple other locations. Those running retail shops, service-based businesses or restaurants often grow their businesses by opening multiple new locations over time.
Unfortunately, rapid expansion can sometimes leave a business overextended. Companies typically need to sign multi-year leases for commercial properties. Those leases can translate to tens of thousands of dollars in financial obligations. When a business owner recognizes that their company grew too fast and that prior expansions are no longer sustainable, they may need to make some hard choices. Choosing to scale back operations is often preferable to shutting down the company as a whole.
However, it may seem impossible to achieve that goal when the organization has multiple leases that will last for several more years. For some, filing for bankruptcy could be a way to address their lease obligations effectively. Yet, there is another, less-damaging means of eliminating lease obligations when a company needs to limit operating expenses but do not otherwise need to address debt via bankruptcy.
Tenants can sometimes assign a lease to others
Occasionally, commercial landlords who own prime real estate know that they can very quickly find a new tenant to take over a unit when a tenant wants to leave. Business owners may find that discussing their current financial hardship and the need to reduce the number of facilities they operate is enough to prompt a landlord into ending their lease early.
Sadly, many landlords do not want to incur the costs associated with marketing to seek out a new tenant and will refuse to release commercial tenants from lease obligations even if the company is at risk. Business owners can take control of the situation by finding a new tenant themselves. They can then negotiate with the landlord to assign their lease to someone else.
Successful lease assignment does require the cooperation of the landlord. The tenant may have to pay extra fees and catch up on past-due rent before the landlord will approve the assignment. When successful, lease assignment can potentially end rental payments at a property years before the lease would typically end.
Unlike bankruptcy, lease assignment does not damage a company’s credit standing or leave the landlord with months or years of unpaid rent. Locating a different organization that can use the space a business currently occupies is one of the most effective ways of eliminating company financial obligations when streamlining operations, as long as the landlord in question is amenable to this approach.