Breaking a Lease

janetwilsonNovember 19, 2003

I appreciate all of your responses to my bankruptcy query. Now, can someone tell me what affect breaking a lease will have on finances? As I mentioned earlier, our business office and warehouse flooded shortly after we moved in two years ago - we got through it and carried on as usual.

Last October we had another flood, not nearly as damaging as the first (roughly 2" of water is all) but a huge inconvenience and money we didn't have was spent on cleanup.

Fast forward to this past Monday, tornados and storm cells hit Houston again - we wade into the offices waist deep in water, the facility sits high from the street and lacked about one foot getting into the office and warehouses. Our new box truck, loaded down with customer computer equipment, was submerged in floodwater.

So we have now flooded 3 times out of 3 years we have been in the offices. The terms of the lease state that flooding has no bearing on the lease, we do not have an out. We want out, the emotional and physical strains on this location are killing us and our business. The building management is unwaivering on our request to move to one of their other locations.

The SBA required us to extend the length of the lease to the term of the loan so we have another 4 years. We are seriously considering walking out on the lease but aren't sure how this will affect our finances going forward. I've never done anything like this. I know we have some real estate guru's and financial experts on the forum, does anyone have any insight they can lend?

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maxwell

You need to talk to a lawyer. I assume your company has someone who does your corporate work. If not, get one. There may be an issue of constuctive eviction, here, but this is much too specialized an area of law to take any chances.

    Bookmark   November 19, 2003 at 1:13PM
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joyfulguy

I'm not a lawyer.

But - if your lease has four years to run, and you can't use flooding as a reason to break it ...

... seems to me that you might be required to pay most, possibly even all, of the lease cost for the next four years, whether or not you use the facility.

Esapecially if the owners are unable to re-lease the location.

As Maxwell says - you need a lawyer.

I don't envy your having to have your new vehicle's engine refurbished after the water in it.

Good luck as you deal with the problems.

joyful guy

    Bookmark   November 20, 2003 at 4:04AM
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janetwilson

Thanks for your responses. We are going to meet with a real estate attorney next week.

Just another day in paradise...

    Bookmark   November 20, 2003 at 10:12AM
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cowboyind

Yes, your attorney of course has to be your guide, but it would seem to me that in this situation, many prudent businesspeople would be strongly considering a lawsuit against the property owner. The lease may have all kinds of tough talk about how the flooding won't cancel the lease, but there is also generally a presumption in the law that something which you are buying or leasing is suitable for the purpose for which it is being sold or leased to you. If a business location is repeatedly under water, I would think you have a decent argument that it's not a suitable place from which to conduct a business.

    Bookmark   November 20, 2003 at 12:08PM
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maxwell

Ken -- That's why I mentioned "constructive eviction." If I remember correctly, it basically means that the leased property is in such a condition that the leasee cannot use it for its normal purpose. Laws on this vary from locality to locality, and I know enough to know that Texas law often differs from what's generally the case in most other states. I'm very glad the OP is consulting a real estate attorney and I hope she manages to get out of this dreadful situation.

    Bookmark   November 21, 2003 at 10:42AM
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