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www.jucm.com JUCM The Journal of Urgent Care Medicine | December 2018 31

HEALTH LAW AND COMPLIANCE

ntrepreneurs, including physicians and physician groups

looking for a new business opportunity like owning their own

urgent care practice, must understand several key aspects

of a commercial lease.

Typically, urgent care centers are located in retail spaces in

an attempt to drive patient visits through visibility and traffic

from nearby stores that appeal to the same target demographic.

Retail developers are doing their part to encourage more urgent

care tenants by designing more intimate, walkable shopping

centers that focus on entertainment and everyday needs.

Urgent care owners should realize that a commercial lease

is significantly different from a residential lease. You may recall

the consequences of breaking an apartment lease typically in-

clude the loss of the security deposit and perhaps a penalty

equal to one month’s rent. However, breaking a commercial

lease has much more serious consequences—ones that may

severely impact your business.

Commercial Leases are Grounded in Contract Law

Courts generally treat a commercial lease as a contract and, in

the absence of a provision in the lease to the contrary, ordinary

contract principles apply.

That notion is critical; how a lease is

interpreted and enforced depends on what terms are specifi-

cally included in the lease.

The principles of landlord tenant law, designed to protect fam-

ilies from sudden and unfair eviction, are not applicable to a com-

mercial lease.

3,4

When a commercial lease is broken or “breached,”

the contract dispute may be litigated. If a commercial landlord

claims a breach of contract, the landlord will need to show:

1. That a contract existed

2. The parties’ obligations under the contract

3. The nature of the breach

4. That the breach was material to the contract

5. Whether the breaching party has a legal defense to

e n f o r c e m e n t o f t h e c o n t r a c t

6. The damages caused by the breach

However, a majority of courts have held that a lease can’t

be forfeited for a trivial or technical breach—even when the

parties have specifically agreed that “any breach” gives rise to

the right of termination.

Thus, courts hold that to justify for-

feiture, the breach must be “material, serious, or substantial.”

For example, a lease may stipulate that the tenant keep the

flower beds maintained; while a few weeds won’t lead to ter-

mination, not paying the rent for several months will.

Remedies

When a landlord terminates a lease following the default of a

tenant, the tenant is obligated to pay the rent due prior to the

termination. However, the tenant has no obligation to pay any

rent that accrues after the termination unless the lease provides

otherwise.

In most instances, a commercial lease drawn up by

legal counsel will have a remedies clause that outlines what

will occur if a party breaches the contract.

If an urgent care center owner defaults under a commercial

lease, the landlord (and its attorney) will consult the lease agree-

ment that both parties signed. A landlord who doesn’t have an

adequate remedy following breach of the lease by a tenant has

What Happens if You Break a

Commercial Lease?

Urgent message: Whether starting a new urgent care center and entering into a lease

for the first time, or evaluating, moving, closing, or selling an existing urgent care center,

understanding the conditions under which it’s permissible—and not permissible—to

break a commercial lease can save you time, money, and legal headaches.

! ALAN A. AYERS, MBA, MAcc

Alan A. Ayers, MBA, MAcc is Chief Executive Officer

of Velocity Urgent Care and is Practice Management Editor

of The Journal of Urgent Care Medicine.

HEALTH LAW AND COMPLIANCE

32 JUCM Th e Jo u rn a l o f Urge n t C a re M e d ic i ne | De ce m ber 20 1 8 ww w. j ucm . co m

“only itself to blame for entering into a lease that failed to pro-

vide such a remedy.” A court won’t “disrupt the settled expec-

tations of leasing parties in order to protect a landlord from the

consequences of failing to insist on an adequate remedy in the

negotiation of a commercial lease.”

If the landlord failed to in-

clude sufficiently detailed default remedies in the commercial

lease, they won’t have the standing to protect their position.

A landlord’s remedies in case of breech are not set by law, but

rather, negotiated into the lease contract.

Typically, a commercial lease will contain these default remedy

clauses:

! Re-entry upon default. The circumstances for the landlord’s

right of re-entry should be specifically detailed in the

lease, such as the nonpayment of rent, breach or nonper-

formance, failing to occupy, abandoning the premises, or

using the premises for an unauthorized purpose. A land-

lord may also include a right to accelerate rent (discussed

below) which is automatically triggered when the right

of re-entry is exercised.

! Lease termination. If a landlord is given the right to re-en-

ter and take possession of the property, it will want the

right to terminate the lease, if necessary. This right of ter-

mination should be specified in the lease, and should only

be exercised upon written notice to tenant.

! Acceleration of payments. An acceleration clause in a com-

mercial lease allows the landlord to declare that all

amounts due under the lease for the balance of the agree-

ment are immediately due and payable upon the default.

For example, once a tenant abandons the property prior

to expiration of the lease, a “landlord [is] within its rights

under New York law to do nothing and collect the full rent

due under the lease.”

! As an alternative to an acceleration clause, an urgent care

center owner may negotiate a clause in lieu of accelerating

the rent. This clause will frequently say that the defaulted

tenant is only liable for the difference between the rent

and other amounts it owes under its lease—and the rent

and other charges actually collected by the landlord from

any new tenant to whom the re-lease the property.

! Repayment of unamortized tenant improvement allowance.

This is a lease provision that states that, upon default, the

landlord gets back the money borrowed by the tenant for

any improvement project. The lease will contain a provi-

sion in which the tenant agrees to pay back the landlord

over the term of the lease.

! Repayment of unamortized brokerage commissions. The

landlord may have unamortized transaction costs, such

as tenant improvements, free rent, legal fees, along with

brokerage commissions, that are typically amortized or

spread out (with interest) over the entire lease term. The

lease may state that the landlord will get those costs from

the tenant in the event of a breach.

! Late charges. A lease may also contain a clause permitting

the landlord to impose late charges for failing to pay rent

or other additional rent obligations on time, and that

states that the late charges are also additional rent. These

terms are generally enforced by the courts.

An urgent care center owner should also be aware of a stip-

ulation in the lease that allows the landlord to exercise more

than one remedy in a single default by the tenant (commonly

termed “Cumulative Rights”).

A Tenant’s Legal Early Termination

Review the terms of your commercial lease to understand each

party’s obligations in the event of an early termination. Typi-

cally, a tenant can only terminate a commercial lease before

the lease term is over without liability if there’s a provision con-

tained in the lease that allows for such action.

A tenant’s right to legally terminate a commercial lease, in-

cluding assigning the lease or subleasing the space to another

tenant, is only assured if the tenant negotiates an early ter-

mination option into the lease.

Common reasons for commercial tenants to request an early

release are when they’ve outgrown the space and require more

room, or their company has had a drastic decrease in size or is

going out of business.

If your urgent care is in a desirable location, the landlord will

be more willing to entertain an early termination of the lease.

One option is to offer a lump-sum payment (perhaps 50 cents

on the dollar). Here are a few of the “outs” for a tenant:

! Break clause. There may be a break clause that gives a ten-

ant or a landlord the option to terminate a lease at least

once during the term. This clause may be invoked by a

party only when the conditions of the break clause are

satisfied. Commercial landlords are usually very reticent

to agree to a termination clause.

! Assignment. An urgent care owner may be able to transfer

their interest in a leased property to another party before

the original lease expires. An assignment must be written

into the lease.

! Subleasing. A tenant can also ask the landlord to sublease

the property to another business for the rest of its lease.

This also can be a clause negotiated into the lease. If it

isn’t included, a tenant may still ask the landlord to con-

sent to a sublease. Note that an assignment is the better

option because the new tenant takes 100% of your obli-

gations. In addition, know that it’s common for a lease to

contain a term that stipulates that the landlord to has the

HEALTH LAW AND COMPLIANCE

www.jucm.com JUCM Th e Jo u rn a l o f Urge n t C a re M e d ic i ne | De ce m ber 20 1 8 33

right to approve of any possible new tenants under an as-

signment or sublease.

! Co-tenancy. This clause allows the tenant to leave if an im-

portant anchor tenant leaves; perhaps it’s the big box

store or grocery that draws major traffic to the property.

! Bailout clause. This term lets a tenant be released from

the lease if its sales don’t reach a predetermined level.

Remember that a landlord must make reasonable efforts to

mitigate damages when a tenant breaches the lease and abandons

the property, provided the commercial lease doesn’t say otherwise.

That means making a good faith effort to rent the property.

Finally, the parties are always free to negotiate to modify

the length of the term at any time during the lease.

Conclusion

Work with a business attorney when first negotiating the lease

for your urgent care center. Breaking a commercial lease will

be much easier—and less costly—if you anticipate the scenarios

discussed in this article and negotiate to include as many as

possible into your lease agreement.

References

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Estate J. October 19, 2018. Available at: https://nerej.com/how-local-retail-dev-is-shift-

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secrets-to-drafting-an-effective-commercial-lease_us_58fe2648e4b086ce58981388.

10. 172 Van Duzer Realty Corp. v. Globe Alumni Student Assistance Ass’n, Inc., 2014 NY

Slip Op 08872, ¶ 4, 24 N.Y.3d 528, 535, 2 N.Y.S.3d 39, 43, 25 N.E.3d 952, 956 (N.Y. Ct.

App. 2014) (quoting Holy Props. v Cole Prods., 87 NY2d 130, 661 NE2d 694, 637 NYS2d

964 1995)).

11. Goldman v MJI Music, Inc., 17 Misc.3d 1127 (A), 851 N.Y.S.2d 69 (N.Y.C. Civil Ct. 2007);

Super Nova 330, LLC v. Mun. Partners, LLC, 2009 NY Slip Op 32481(U), ¶ 7 (N.Y. Sup.

Ct. 2009).

12. Emerson D. How to negotiate an early exit from a lease. Finance & Commerce. March

19, 2014. Available at: https://finance-commerce.com/2014/03/how-to-negotiate-an-

early-exit-from-a-lease/.

13. GKG Net, Inc. v Mitchell Rudder Props., L.P., 330 S.W.3d 426, 431-32 (Tex. App. 2010).

14. Chung C. Can I terminate a commercial lease early? LegalMatch. February 27, 2018.

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