Breaking a commercial lease - what's the Arizona rules/regs? (Phoenix: real estate, leases)

[blisterpeanuts]

A neighbor of mine got herself into a bit of a situation; she started a dance studio in Glendale a couple of years ago and signed a 5 year lease on a $2600/month commercial space, but got into hot water when the recession hit and business slowed way down.

The building owner refused to break the lease unless she paid $50,000. They negotiated it down to about $17,000, payable over the next couple of years. She's gotten a job in a restaurant to pay down the debt.

My question is this--don't business owners have more options? I haven't been in this situation myself, fortunately, but I thought that closing or declaring bankruptcy is enough grounds to get out of a commercial lease. Commercial leases are renegotiated all the time. It's just a reality of doing business.

I'm wondering if this person is a bit naive, thinking she's got to pay off this "obligation" at a time when there are tons of commercial vacancies around Phoenix and landlords are screaming for tenants. I would have thought--declare bankruptcy, get all your paperwork in order, and get a good lawyer to help you get the lease annulled, then start over.

[observer53]

It might be worth 17,000 to keep a bankruptcy off her credit. I'm sure bankruptcy would be an option as you suggest, she just might rather go this route.

[SOON2BNSURPRISE]

Would you object to the building owner increasing her lease amount if she had succeeded and made more money than expected? She gambled and it didn't work out and she lost. The building owner has a document stating that she will pay for the remainder of the lease. It is not the building owners fault that she didn't make it. They do have a legal agreement though.

She could file for bankruptcy as was stated.

She could walk away and take her chances.

Both her and the building owner could change the agreement and settle on another amount. Seems that they did that and she is willing to accept responsibility for the new arrangement.

[blisterpeanuts]

To restate the original question -- anyone out there with some experience in these matters know something about the rules and regs?

[Captain Bill]

Originally Posted by blisterpeanuts

To restate the original question -- anyone out there with some experience in these matters know something about the rules and regs?

Commercial leases are complex. My recommendation is that your friend contact a commercial real estate attorney. I don't know any, but you can google for one and check them out.