Feeling stuck in a commercial lease that no longer fits your business? Whether you're expanding, downsizing, or relocating, breaking a commercial lease can be risky if not handled properly. Early lease termination without a plan may result in financial penalties, credit damage, or even legal action.
This guide covers how to get out of a commercial lease with minimal disruption. Our Denver commercial lease attorneys break down exit strategies, negotiation tactics, and legal safeguards to help you protect your business every step of the way.
Know the Terms of Your Commercial Lease Agreement
Before exploring exit strategies, you need to thoroughly understand the binding contract you've signed. Your lease document contains critical information about your rights and obligations.
A commercial lease agreement is a legally binding contract between a landlord (property owner) and a tenant (business) that outlines the terms and conditions under which the tenant can occupy and use a commercial property for a specific period.
Many commercial leases often include clauses on insurance, utilities, and penalties for breach. These complex documents require careful review. In Colorado, commercial lease agreements are governed by Colorado Revised Statutes (C.R.S.) § 38-12-101 et seq., which establishes the legal framework for commercial tenancy relationships. These complex documents require careful review. In Colorado, this is especially important as Denver’s 28.2% office vacancy rate in Q3 2025 creates both challenges and opportunities for lease exits.
A well-crafted lease protects both parties and sets clear expectations for the business relationship. To plan your exit, begin by reviewing these key sections in your agreement:
What Is the Penalty for Breaking a Commercial Lease?
Breaking a commercial lease early often carries serious legal consequences. Knowing these potential penalties in advance will help you make an informed decision about your exit strategy.
Most landlords will pursue some combination of the following:
- Acceleration of rent (requiring payment of all remaining lease term rent immediately)
- Forfeiture of your security deposit
- Possibly additional damages for lost income or property condition
Lease defaults can hurt your business credit, making financing more difficult and more expensive. They may also lead to legal action and make future leasing difficult, as landlords often check references and avoid tenants with early termination history.
Many of these issues can be avoided with well-drafted agreements, so it's important to know what to include in a commercial lease.
Your Landlord's Obligations
It's equally important to understand what your landlord must provide:
- Property maintenance: Landlords must maintain the structural integrity, common areas, and systems according to the lease terms.
- Duty to mitigate damages: In many jurisdictions, landlords must make reasonable efforts to re-rent the property if you vacate early.
- Quiet enjoyment: You have the right to conduct business without unreasonable interference.
When landlords fail to meet these obligations, you may have grounds for termination.
Common Reasons to Terminate a Commercial Lease
Businesses seek to exit commercial leases for various legitimate reasons, and your specific circumstances will influence which exit strategy makes the most sense for your situation.
- Growth: Outgrown your current space? Limited square footage, parking, or facilities can hinder growth and profitability.
- Downsizing: Economic downturns or changing models may require reducing your footprint. Excess space drains resources.
- Relocation: A better location (improved visibility, customer access, efficiency) might be available. Lease constraints can impact long-term success.
- Property issues: Maintenance problems, safety concerns, or landlord breaches can make operations difficult or impossible; this may provide legal grounds for termination.
- Economic hardship: Financial obligations can make lease payments impossible. Proactive action is preferable to default and eviction.
- Co-tenancy issues: A co-tenancy clause may allow you to terminate or reduce rent if anchor tenants leave or when occupancy drops below a certain threshold in retail spaces.
Legal Ways to Break a Commercial Lease
Breaking a commercial lease can be costly and complex, but it's not always unavoidable:
Early Termination Clause
The cleanest exit strategy is through a pre-negotiated early termination clause. This provision, specifically designed for orderly exits, can save significant stress, time, and money when properly executed.
If your lease contains this valuable provision, here's what the process typically involves:
Each lease's early termination clause has unique requirements, and missing even minor details can invalidate your termination rights. Contact us to review your lease for early termination options. Our contract law team can identify the most cost-effective way to exercise these rights and ensure full compliance with all requirements.
Landlord's Material Breach
Significant landlord failures to meet lease obligations constituting a material breach can provide grounds for lease termination.
Examples include:
- Neglecting essential repairs impacting your business
- Violating health or safety codes
- Failing to provide promised services
- Unreasonably interfering with your operations
To pursue this, meticulously document all breaches (photos, correspondence, witness statements), provide formal written notice demanding a remedy, and allow reasonable time for correction (as per your lease). If the issue remains unresolved, seek legal counsel to explore termination.
Assignment/Sublease
Many leases allow transferring obligations to another party: assignment (full lease transfer) or sublease (renting part of your space). Landlord approval is often required, and you may still be liable if the new tenant defaults, so vet all candidates carefully to reduce risk.
Commercial Lease Buyout
A negotiated buyout involves a lump-sum payment to release you from future lease obligations.
Effective strategies include offering two to six months' rent (depending on market conditions), demonstrating financial hardship to avoid default, identifying a replacement tenant, and timing negotiations for optimal rental market conditions.
While costly upfront, a buyout can be more economical than continuing to pay rent for the entire lease term. In some cases, a formal Deed of Surrender may be executed — a legal document that explicitly releases both parties from all lease obligations and liabilities, providing the cleanest possible exit.
When Bankruptcy Makes Sense
Filing for Chapter 7 or Chapter 11 bankruptcy might allow rejection of a commercial lease. However, this move carries severe, long-term legal consequences and should be considered a last resort.
- Credit impact: It severely impacts your company's credit history.
- Costs: It may necessitate asset liquidation and incur significant legal and administrative costs.
- Future obstacles: It creates future business obstacles and reputation damage, potentially making it harder to secure future leases or financing.
Given Colorado's high business failure rate — with 26,843 establishments closing annually — bankruptcy becomes a last resort when other exit strategies prove unfeasible. Explore all other legal options before considering bankruptcy as a last resort.
If your goal is to relocate a growing business, the long-term legal implications of bankruptcy will far outweigh the cost of a lease buyout. A negotiated lease buyout is almost always the cleaner, less damaging exit strategy for a viable business.
Negotiating Commercial Lease Exit
A cooperative approach often works best when ending a commercial lease. Even without a termination clause, landlords may agree to early release if the market favors re-leasing and you offer a fair settlement, help find a replacement tenant, and give ample notice.
Negotiating Mutual Termination
When negotiating mutual termination, begin early, maintain professionalism, emphasize mutual benefits, be prepared to compromise, and obtain all agreements in writing via a formal termination agreement.
Negotiating Alternative Lease Terms
If complete termination isn't feasible, explore these alternatives:
- Temporarily or permanently reducing rent
- Returning a portion of your leased space
- Converting to a month-to-month agreement
- Restructuring payments to match your cash flow
These options can offer short-term relief while you develop a longer-term strategy.
Minimizing Costs When Breaking a Commercial Lease
Several strategies can significantly reduce the financial burden of early lease termination.
Subleasing
Subleasing your space to a new tenant can offset lease costs. Remember that you remain liable if your sub-tenant defaults.
Effectively sublet by using commercial real estate platforms or brokers to find qualified tenants, thoroughly vetting applicants for financial stability and operational compatibility, creating a comprehensive sublease agreement, and maintaining oversight to ensure compliance with your primary lease.
Reviewing Your Business Insurance
Some business insurance policies include coverage for costs you incur when ending a commercial lease in certain circumstances surrounding the break. Reviewing your policy or speaking with your carrier can help you determine whether you can claim any costs in your situation, making it easier to move forward.
Negotiating a Lease Buyout
Negotiate a cost-effective buyout by timing your discussions during periods of strong rental markets, providing market data showing the landlord's ability to quickly re-lease, offering to leave valuable improvements, proposing a phased payment schedule if needed, and assisting with showings to prospective tenants.
Mitigating Landlord Damages
Regardless of your exit strategy, minimizing landlord losses protects your financial position and reputation. Return the space in excellent condition, provide ample notice of your departure, actively assist in marketing to potential new tenants, maintain open communication throughout the process, and scrupulously adhere to all lease termination procedures.
Key Components of a Commercial Lease Termination Letter
If you are proceeding with a termination, a formal commercial lease termination letter must be sent to your landlord via certified mail with a return receipt requested to create a verifiable record. This letter typically includes:
- Date of planned property vacancy
- Date of key surrender
- Request for inspection
- New business address
- Contact information for a business representative
- Reasoning behind the early termination
Tips for Avoiding Breaking a Commercial Lease in the Future
The best way to handle lease termination challenges is to prevent them through strategic planning. Learning from current experiences can help you create more flexible arrangements in the future.
By implementing these approaches in your next lease negotiation, you can significantly reduce the likelihood of finding yourself trapped in an unsuitable commercial space agreement. Remember that most lease terms are negotiable before signing, and investing in professional lease review services can provide substantial long-term value.
Sequoia Legal — Your Trusted Contract Lawyer in Denver, CO
Navigating how to get out of a commercial lease requires balancing legal rights, financial considerations, and business relationships. At Sequoia Legal, our experienced commercial law attorneys can help you identify the most advantageous exit strategy for your specific situation.
Need help reviewing your lease, negotiating terms, or drafting a sublease? Sequoia Legal is here to protect your business and minimize disruption.
Contact us today for a free consultation and explore your best path forward.
