Getting Out of a Business Lease in Arizona

If you are looking to break your business lease in Arizona, understanding your rights as a tenant and your termination options can help you navigate this process smoothly. Maybe your business is moving to a new location, or perhaps you no longer have the funds to maintain your lease. Whatever the reason, you probably did not make this decision lightly, yet you know breaking the lease is ultimately the right move.

Learn more about breaking a commercial lease agreement in Arizona, then contact a real estate attorney for legal assistance.

Reviewing the Early Termination Clause in Your Lease

Your first step in getting out of a business lease in Arizona is taking a close look at your lease agreement. This contract should detail your options for early termination and the potential penalties that breaking the lease would incur.

Look for an early termination clause that specifies the process of ending the lease prematurely. It may require you to give a certain amount of notice; monthly leases usually require at least 30 days’ notice, while weekly leases typically require at least 10 days. Multi-year leases often require notice of six or 12 months.

The early termination clause may also specify a penalty or fee you will need to pay for breaking the lease. This helps cover some of the expenses the landlord will face while finding a replacement tenant. Often, the penalty is two or three times the cost of rent.

If you decide to break the lease under the terms of the early termination clause, an experienced real estate attorney can draft an exercise letter for you. This will officially state your desire to terminate the lease, the effective date, the penalty you will pay, how you will pay it, and the condition of the premises.

If you feel the early termination requirements are unreasonable in the present market conditions, talk to your attorney about your options.

Delivering Notice of Early Termination to the Landlord

If you intend to break your lease under the early termination clause, you are likely required to give notice to the landlord a specific number of days before the termination.

Arizona allows tenants to deliver the notice in two ways:

• Sending the person a letter via registered or certified mail
• Delivering a written notice in person

Make sure to use one of these methods. If you provide notice through any other means, such as via email or verbally, it may not be considered valid. This may prevent you from terminating the lease at the intended time or require you to pay additional rent or fees.

Terminating a Lease Without an Early Termination Clause

If your business lease in Arizona does not have an explicit early termination clause, comb through the lease to determine whether any provisions, addenda, exhibits, or side letters provide information about terminating it. If not, you may be able to end it under tenant rights if you meet one of the following qualifications.

The Unit Is Uninhabitable

Rental property in Arizona must meet the state’s safety and health codes as well as all commercial building regulations. These include building codes, fire safety regulations, environmental health standards, and more.

If your Arizona business rental does not meet these conditions, your landlord is responsible for making prompt repairs to restore it to this standard. If they do not, you may have grounds to break the lease.

Examples of reasons the building may be uninhabitable include:

• It is not structurally sound.
• The plumbing system does not work correctly or poses a safety hazard.
• There are pests, mold, waste issues, or other environmental hazards.
• The building does not have adequate fire alarms, smoke detectors, and other fire safety measures.

Your real estate attorney can advise you about your rights to vacate the property and terminate your lease if the rental is uninhabitable. You need to follow a specific process for doing so, such as informing your landlord of the hazardous conditions and giving them reasonable time to mitigate them.

You Are Serving Active Military Duty

While less common, you may have the right to terminate your lease if you are serving active military duty. This right is protected under the Servicemembers Civil Relief Act, which allows service members to end their leases early due to deployment or a permanent change in station.

The Landlord Is Harassing You

If your landlord is harassing you or violating your privacy, you may be able to legally break the lease. Examples of landlord harassment include:

• Verbal threats and abuse
• Repeatedly entering the rental property without notice or permission
• Demanding extra rent when none is due
• Removing items from the property without cause
• Shutting off utilities
• Unreasonably increasing rent costs without notice

Harassment may cause you to feel unsafe continuing your lease, providing grounds to end it early.

You may be able to prove other behaviors as forms of harassment as well. Save all communications with your landlord on at least two devices in case you need to validate your claims.

Other Reasons

You may be able to end a business lease in Arizona for certain other reasons. For example:

• The rental contract is illegal, making it unenforceable.
• Your landlord has repeatedly violated the lease agreement.
• The landlord did not disclose known defects in the property under “mandatory disclosure” rules.
• The landlord tricked or coerced you into signing a longer contract than you intended to.

However, you cannot simply move out of the property and expect the landlord to end your lease. You will need to work with an attorney to process the termination and potentially seek court approval. Landlords typically do not take kindly to early termination, and yours will likely fight against it.

Unjustifiable Reasons for Breaking a Business Lease

You may feel you have a good reason for breaking a retail lease in Arizona, but that does not mean your reasoning is valid enough to avoid penalties. Here are a few unjustifiable reasons for breaking a lease.

• Your business has outgrown the current space. Consider asking the landlord if you could switch to another unit under their management instead. This may be worthwhile to them if you would be paying higher rent. 
• You can no longer afford to pay the rent. In this case, you may be better off trying to reach an agreement with the landlord to push back the rent due date or make other accommodations. This may be more affordable for the landlord than evicting you.
• Your business is closing. Many business owners falsely believe they can end their leases if they close the business. In reality, your lease will still be legally valid even if you cease operations. 
• You are filing for bankruptcy. Your business lease obligations do not disappear when you file for bankruptcy. Check with your attorney about how filing for bankruptcy might affect your lease. 

Other Options for Getting Out of a Business Lease

If you want to get out of a business lease in Arizona but do not meet the criteria for early termination, you may have other options. 

Transferring the Lease

Check the lease terms for your business to determine whether you can transfer the lease to someone else. Your landlord may allow you to pass your rental responsibilities to a new tenant, as long as you can find one who meets the rental conditions.

Your attorney can help you draft an assignment agreement that details the transfer of rights and obligations to the new tenant. Upon the landlord’s approval, this would officially remove your responsibilities for the property’s rental costs and upkeep.

Subleasing the Property 

If transferring the lease is not an option for your office space rental in AZ, subleasing might be. Again, you will need to check your lease agreement to determine whether you are eligible to sublease it. If so, this would essentially involve you renting out the property to a new tenant. 

You would still be responsible for paying the rent from the proceeds you receive from the new tenant. You would also be legally responsible for repairs and damage to the property.

Subleasing is a three-party transaction between you, your landlord, and the new tenant, so you will want a strong sublease agreement in place that accounts for this complexity. With the help of your attorney, create an agreement that details the new tenant’s obligations and liabilities.

Commercial Lease Buyout 

If transferring and subleasing are not practical, a commercial lease buyout may be another option to explore. This involves negotiating a lump-sum fee that the landlord would accept in place of you continuing the lease to the end of the term. 

This lump sum may range anywhere from a few months’ rent to the sum of your total remaining rent obligations. While the latter option won’t save you much money, it will still prevent you from paying for utilities for the rest of the lease term (as long as it is not a triple-net lease) and requiring you to be responsible for the property.

Have your attorney talk to your landlord about the idea of negotiating a buyout. 

What If the Landlord Refuses To Let You Out of the Lease?

As much as you may want to get out of a business lease in Arizona, you signed a contract that requires you to maintain the lease until the end of the stated term. Your landlord may not be willing to budge. In this case, you have a few final options.

Wait It Out

Review your lease closely to determine when the rental period ends. If the lease ends sometime within the next six months, it may make more sense for you to simply wait it out rather than try to negotiate an early termination. This will save you the time, expense, and hassle of trying to break the lease.

But if you signed a multi-year contract and still have several years before the end of the lease, waiting it out may not be feasible.

Dispute Resolution

Having a real estate attorney on your side can be incredibly helpful as you attempt to convince your landlord to let you out of the lease. They can negotiate with the landlord or suggest other dispute resolution tactics, such as arbitration or mediation, to reach a solution. If your attorney can prove that the property is nearing uninhabitable conditions or the landlord is harassing you, you will have greater leverage in these negotiations.

Defaulting on a Commercial Lease: Is It a Good Idea?

You may think about simply defaulting on the lease and facing eviction. While this might seem like a good way to eventually cut ties with your landlord, it likely won’t save you any money compared to paying out the rest of your rental obligation, and may even cost you more.

Your landlord could seek a commercial eviction lawsuit to recover your outstanding debt and any damages caused by the default. These might include property repairs or the costs to dispose of any items you left behind in the unit.

If you truly cannot afford the rent for your business lease, you may have no other choice but eviction. Talk to your landlord about whether they would be willing to lower your rent, push back the due date, or make other accommodations to avoid evicting you. They may be willing to negotiate if they know you do not have adequate assets for them to seek in a lawsuit.

Seek Assistance From Our Arizona Real Estate Attorneys

Breaking a business lease in Arizona isn’t always easy, but you have several options to explore if you want to end your lease early. An experienced attorney can help you navigate this often complex process with confidence.

At Kadish Associates Law Group, we have over 50 years of experience in business law and commercial real estate. We will help you explore all of your options for early termination and represent you every step of the way.

Contact us today at  480-967-2688 to schedule a consultation with our commercial real estate attorneys in Phoenix.