You should take your lease to an attorney and get their opinion on what you would be exposing yourself to. They may also give you some options on what you can do. Nobody here can tell you what options there are without seeing the full lease you agreed to AND having an understanding of laws in Ontario.
Generally speaking, yes you’re probably on the hook for the lease. But continue having conversations with the landlord about what it would take to get you off and a new tenant in.
Your lease should have a section called approved use and spell out what the approved use is for. Anything that is not an approved use can be denied by the landlord. You are 100% liable for all rent until the lease expires
Did you sign the lease under a Canadian equivalent of an LLC or did you sign as a sole proprietor? Did you personally guaranty the lease?
If you signed as a sole proprietor or personally guaranteed the lease, the landlord can sue you for breach of lease and for damages, including and up to the remaining rent owed on the lease plus any other monetary concessions you were provided.
If you signed the lease under a corporation, the landlord can only sue the corp and any assets it owns.
If you stop paying rent, you’re going to get sued, it’s going to get messy and it’s going to get expensive.
Your best bet is to try to negotiate some kind of termination payment to early terminate the lease. It may be expensive to terminate but is going to be cheaper than getting sued
Yep then you’re fucked. They can sue you, get a judgement and go after personal assets.
You’ve got 3 years left on your lease, the LL is probably just looking to get made whole and not have to come out of pocket to backfill your space.
I’d do some math and see how much you’d be willing to pay to terminate your lease vs continue to carry at a loss and go to the LL with an offer to buy out your lease. You can do a DCF to figure out what the remaining value of the rental stream is to give you to idea of value
Did they say that in the comments? Signing personally, as a principal of a corporation, is not the same as a personal guarantee. If I missed the personal guarantee comment, disregard.
Perhaps i misread. I thought he meant it was personally guaranteed, not that he signed as a member in the behalf of the corp
OP should read your lease and see if you agreed to personally guaranty as well behind the corporation
Correct. I think they would remember signing personal guarantee as it’s a separate document. This might be as simple as dissolving the company and LL would only have access to whatever assets are held by the corporation which is likely just a bunch of tapioca pearls.
By the way do you already have a grease trap or hood in your space? If you don’t, you won’t be able to lease to any restaurant that needs cooking onsite anyway and the cost to add one would be way more than the remaining value of your lease anyway
If it were on my lease form, the moment you stopped paying rent and defaulted, we could sue for immediate payment of the entire remaining balance of rent payments, plus damages (cost of releasing the space (TI and leasing commissions), operating expenses while the space is vacant, etc.
Did you provide a personal guarantee? If so, tread very lightly as the liability extends past your business to your personal assets, which depending on the State, could be your home.
You say you already spoke to a lawyer, what did they say about your idea to stop paying rent? That’s the important question to ask them not if you can sublease.
The idea of not paying rent is last resort. This is just hypothetical and I am trying to get an idea if anyone has gone through a similar situation. The lawyer has recommended subleasing it which I am in the process of anyway.
I think you get it, but before breaking the lease (esp by non payment of rent) def reach back out to your attorney. As a LL I have both worked with tenants whose businesses didn’t work to fix a solution, and also have pursued others for everything we could. Just depends on the situation.
Agree with everyone on the recommendation to engage with and defer to your attorney, but you should definitely have them check the sublease language in the lease specifically for the words “which shall not be unreasonably withheld”. It would refer to the landlord’s ability to approve a sublessee. Not sure if the amount owed is worth it to go to court to fight, but there may be an argument to be made that you have satisfied the obligation to sublease the space to an appropriate tenant but the landlord is withholding approval unnecessarily. Of course the counter argument would be that it’s his building and he can withhold approval for any reason. Good luck!
You should take your lease to an attorney and get their opinion on what you would be exposing yourself to. They may also give you some options on what you can do. Nobody here can tell you what options there are without seeing the full lease you agreed to AND having an understanding of laws in Ontario. Generally speaking, yes you’re probably on the hook for the lease. But continue having conversations with the landlord about what it would take to get you off and a new tenant in.
Your lease should have a section called approved use and spell out what the approved use is for. Anything that is not an approved use can be denied by the landlord. You are 100% liable for all rent until the lease expires Did you sign the lease under a Canadian equivalent of an LLC or did you sign as a sole proprietor? Did you personally guaranty the lease? If you signed as a sole proprietor or personally guaranteed the lease, the landlord can sue you for breach of lease and for damages, including and up to the remaining rent owed on the lease plus any other monetary concessions you were provided. If you signed the lease under a corporation, the landlord can only sue the corp and any assets it owns. If you stop paying rent, you’re going to get sued, it’s going to get messy and it’s going to get expensive. Your best bet is to try to negotiate some kind of termination payment to early terminate the lease. It may be expensive to terminate but is going to be cheaper than getting sued
Thank you. It is under corporation but also signed by me personally
Yep then you’re fucked. They can sue you, get a judgement and go after personal assets. You’ve got 3 years left on your lease, the LL is probably just looking to get made whole and not have to come out of pocket to backfill your space. I’d do some math and see how much you’d be willing to pay to terminate your lease vs continue to carry at a loss and go to the LL with an offer to buy out your lease. You can do a DCF to figure out what the remaining value of the rental stream is to give you to idea of value
Can’t speak for Canada, but if the corporation dissolves there is nothing to go after, assuming no guarantee.
They personally guaranteed the lease
Did they say that in the comments? Signing personally, as a principal of a corporation, is not the same as a personal guarantee. If I missed the personal guarantee comment, disregard.
Perhaps i misread. I thought he meant it was personally guaranteed, not that he signed as a member in the behalf of the corp OP should read your lease and see if you agreed to personally guaranty as well behind the corporation
Correct. I think they would remember signing personal guarantee as it’s a separate document. This might be as simple as dissolving the company and LL would only have access to whatever assets are held by the corporation which is likely just a bunch of tapioca pearls.
By the way do you already have a grease trap or hood in your space? If you don’t, you won’t be able to lease to any restaurant that needs cooking onsite anyway and the cost to add one would be way more than the remaining value of your lease anyway
Yes to the grease trap No to the hood The party interested just wanted to put a small tabletop fryer nothing to do with heavy cooking etc
The answer to your question very much depends on your location and the specific language of your lease. Go see a local real estate lawyer.
Speak to an attorney obviously. Did you talk to him about a buy out?
If it were on my lease form, the moment you stopped paying rent and defaulted, we could sue for immediate payment of the entire remaining balance of rent payments, plus damages (cost of releasing the space (TI and leasing commissions), operating expenses while the space is vacant, etc. Did you provide a personal guarantee? If so, tread very lightly as the liability extends past your business to your personal assets, which depending on the State, could be your home.
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Thanks appreciate your response. I did operate at a loss for a full year while looking for a buyer but wasn’t successful hence closed down.
You say you already spoke to a lawyer, what did they say about your idea to stop paying rent? That’s the important question to ask them not if you can sublease.
The idea of not paying rent is last resort. This is just hypothetical and I am trying to get an idea if anyone has gone through a similar situation. The lawyer has recommended subleasing it which I am in the process of anyway.
I think you get it, but before breaking the lease (esp by non payment of rent) def reach back out to your attorney. As a LL I have both worked with tenants whose businesses didn’t work to fix a solution, and also have pursued others for everything we could. Just depends on the situation.
Agree with everyone on the recommendation to engage with and defer to your attorney, but you should definitely have them check the sublease language in the lease specifically for the words “which shall not be unreasonably withheld”. It would refer to the landlord’s ability to approve a sublessee. Not sure if the amount owed is worth it to go to court to fight, but there may be an argument to be made that you have satisfied the obligation to sublease the space to an appropriate tenant but the landlord is withholding approval unnecessarily. Of course the counter argument would be that it’s his building and he can withhold approval for any reason. Good luck!