Free Enterprise - The FindLaw Small Business Law Blog

You Can't Pay Your Business Rent. Now What?

By Guest Writer Jennifer K. Halford, Esq.

Not paying the rent for your commercial lease can have long term negative consequences for your business. A negative credit report can affect your application for a business loan and for the lease of another location.

Plus, your personal credit can be affected. You are still liable for the rent if you personally guaranteed the lease. This means your personal assets, bank accounts, and home are at risk.

So if you can't pay your business rent, what do you do?

There are options if you can't pay your commercial lease or you anticipate that you will not be able to. Here are some steps to protect yourself:

1. Talk to your landlord early on: Don't forget that your landlord is also business owner. The economy is affecting the commercial real estate market and your landlord's business too. In this economic climate, your landlord may be more flexible and willing to negotiate if you show that you are trying to fix the situation before you fall too far behind in rent payments.

2. Try to renegotiate your rent: Talk with your landlord about a decreased rent for a period of time. If your business generates more income during certain months, ask if you can pay more rent during those months and less rent in your slower months.

3. Assign or sublet: Pull out your lease agreement and read what it says about assigning or subletting your interest in the lease. If your financial situation is such that you can't pay your business rent now or in the future, you may want to transfer your lease interest to another tenant. Most commercial leases provide that a tenant is required to get the landlord's consent before assigning or subletting. Discuss prospects with your landlord immediately to expedite the process.

The important thing to remember is that if you can't pay your business rent, you need to be proactive. Addressing the situation early on will help you protect your business and your personal assets.

Jennifer K. Halford is a professor at California State University, Chico, where she teaches Entrepreneurial Law. Her law practice focuses on business law and estate planning.