Early Lease Termination

[CDobby]

Jurisdiction

Texas

Hello, Im new to this forum and need advice. We leased a space in this strip mall for 5 years. 3 years 2 months Ive been putting my own money and we were about to loose our home. Of course we had almost 2 years left on the space. I called the landlord to let him know at the begging of the month that we could no longer afford the space as it was draining our personal finances. He asked me if i would be able to make the next months payment, I told him no. He then told me that he understands and I didn't ask him to shut down just do I could have just shut down. A week in a half later, I called to remind him of our agreement, he then said I have sold the building.

Does a verbal agreement hold up in court? I do have him recorded agreeing before he sold the place.

 

[adjusterjack]

It's not clear what you think he agreed to but, no, it probably wouldn't hold up in court, nor would it be binding on the new owner though your lease would transfer to the new owner and be binding on you.

The Texas Commerce Code Section 26.01 requires "a lease of real estate for a term longer than one year" to be in writing.

2005 Texas Business & Commerce Code CHAPTER 26. STATUTE OF FRAUDS

Since your lease is for 5 years, my guess is that any amendment or waiver of terms would also have to be in writing to be enforceable.

Frankly, if you need to shut down your business and move out to save your financial butt, then do it and deal with the consequences later. Just make sure you don't pay the LL another nickel. Having your money in your pocket gives you some negotiating power over a landlord who just bought himself a vacant building.

 

[CDobby]

Thanks for your reply. Little worried, even though it's an Llc. I personally guaranteed.

 

[army judge]

Thanks for your reply. Little worried, even though it's an Llc. I personally guaranteed.

Talk to a bankruptcy attorney ASAP.

There might be a legal way to help you.

 

[CDobby]

Talk to a bankruptcy attorney ASAP.

There might be a legal way to help you.

Thank you. I will talk with someone asap.

 

[CDobby]

Talk to a bankruptcy attorney ASAP.

There might be a legal way to help you.

Thanks for your advice, I talked to a Bankruptcy attorney and he said there are 2 options. File business Bankruptcy or file chapter 7 since we personally guaranteed. Which way do you suggest going. We'd like to save the business as we have found a place more affordable that doesn't dip into our personal finances.

 

[adjusterjack]

A business bankruptcy is essentially a reorganization that requires you to pay your debts over a period of time (though possibly discounted).

I suggest that you wait to decide, until after you are out of the building and see how much money you owe for breaching the lease.

Recall that I suggested you just leave and pay nothing further.

Texas statute 91.006 requires a landlord to mitigate his damages which means he has to rerent as soon as reasonably possible.

Sec. 91.006. LANDLORD'S DUTY TO MITIGATE DAMAGES. (a) A landlord has a duty to mitigate damages if a tenant abandons the leased premises in violation of the lease.
(b) A provision of a lease that purports to waive a right or to exempt a landlord from a liability or duty under this section is void.

2015 Texas Statutes :: PROPERTY CODE :: TITLE 8 - LANDLORD AND TENANT :: CHAPTER 91 - PROVISIONS GENERALLY APPLICABLE TO LANDLORDS AND TENANTS

After you leave you periodically keep an eye on the place to verify that it has been rerented and then you can determine how much you owe for breaching the lease and you can decide if any kind of bankruptcy is even necessary.

 

[CDobby]

A business bankruptcy is essentially a reorganization that requires you to pay your debts over a period of time (though possibly discounted).

I suggest that you wait to decide, until after you are out of the building and see how much money you owe for breaching the lease.

Recall that I suggested you just leave and pay nothing further.

Texas statute 91.006 requires a landlord to mitigate his damages which means he has to rerent as soon as reasonably possible.

Sec. 91.006. LANDLORD'S DUTY TO MITIGATE DAMAGES. (a) A landlord has a duty to mitigate damages if a tenant abandons the leased premises in violation of the lease.
(b) A provision of a lease that purports to waive a right or to exempt a landlord from a liability or duty under this section is void.

2015 Texas Statutes :: PROPERTY CODE :: TITLE 8 - LANDLORD AND TENANT :: CHAPTER 91 - PROVISIONS GENERALLY APPLICABLE TO LANDLORDS AND TENANTS

After you leave you periodically keep an eye on the place to verify that it has been rerented and then you can determine how much you owe for breaching the lease and you can decide if any kind of bankruptcy is even necessary.

Okay,

We have been out of the building a couple months. We received a letter from leasing agent attorney that they are going to sue us for back rent if we don't pay by a certain date. Also, they want us to keep making future payments. The letter demand that we make continue to make future payments of rent each month. Even-though the building is empty and they have a lease sign in the window. As of now it has not been re-rented. The letter threatens to accelerate the rent too.

We now are in an economical location that doesn't put the strain on us personally.

 

[adjusterjack]

We have been out of the building a couple months.

OK, good.

We received a letter from leasing agent attorney that they are going to sue us for back rent if we don't pay by a certain date.

To paraphrase Yoda, there is no "going to sue" there is only sue or not sue. It's cheap and easy to get a lawyer to write a letter. Not so cheap or easy to file a lawsuit. Until you get served a summons and complaint you are free to ignore the threats. Or, you are free to succumb to the threats. Up to you.

Also, they want us to keep making future payments.

Of course they do. You would be foolish to pay them anything at this point.

Even-though the building is empty and they have a lease sign in the window. As of now it has not been re-rented. The letter threatens to accelerate the rent too.

An idle threat per that statute I quoted.

If you do end up getting sued, one defense is lack of mitigation. The Texas Court of Appeals explains mitigation:

Section 91.006 of the Texas Property Code requires a landlord to mitigate his damages after the breach of a lease and declares void any lease provision to the contrary. See TEX. PROP.CODE ANN. § 91.006 (Vernon Supp.2005); Lunsford Consulting Group, Inc. v. Crescent Real Estate Funding VIII, L.P., 77 S.W.3d 473, 476 (Tex.App.-Houston [1st Dist.] 2002, no pet.); see also Austin Hill Country Realty, Inc. v. Palisades Plaza, Inc., 948 S.W.2d 293, 299-300 (Tex.1997), abrogated, in part, by TEX. PROP.CODE ANN. § 91.006.

The tenant bears the burden of proof to demonstrate that the landlord has mitigated or failed to mitigate damages and the amount by which the landlord reduced or could have reduced his damages. See Austin Hill Country Realty, 948 S.W.2d at 299.

A tenant's contention that the landlord failed to mitigate his damages must be pleaded as an affirmative defense. See Austin Hill Country Realty, 948 S.W.2d at 300. However, when a tenant contends that the landlord has actually mitigated his damages, the breaching tenant 278*278 need not plead the landlord's actual mitigation as an affirmative defense. See Austin Hill Country Realty, 948 S.W.2d at 300. Rather, the tenant's evidence of the landlord's mitigation tends to rebut the measure of damages under the landlord's claim of breach and may be admitted under a general denial. See Austin Hill Country Realty, 948 S.W.2d at 300. The offset of a landlord's breach of lease damages by the amount he was able to mitigate his damages raises a fact issue regarding the reasonableness of the offset, precluding summary judgment. See Nautilus Training Ctr. No. 2, Inc. v. Seafirst Leasing Corp., 647 S.W.2d 344, 347 (Tex. App.-Corpus Christi 1982, no writ).

Google Scholar

There are many other Texas case decisions involving that statute:

91.006 - Google Scholar

It would be a good idea for you to consult a real estate attorney regarding mitigation and see if it's worth responding to the landlord's attorney with an admonition to mitigate or to wait until a lawsuit occurs and then sandbag the plaintiff with a mitigation defense.

Meantime, I suggest you take dated photos of the "For Lease" sign and check Craigslist and your local paper's real estate ads to see if the landlord is doing any advertising.

Another option is to negotiate a lump sum full and final cash settlement (in writing, of course). Best to have a lawyer do that for you.

Your leverage is holding on to your money while your enemy isn't getting any.

Also understand that the above is not legal advice and if you act on my comments you do so at your own risk.

 

[CDobby]

Thanks for your thoughts on the matter. It's good to know options to pursue with a lawyer.

 

[CDobby]

OK, good.



To paraphrase Yoda, there is no "going to sue" there is only sue or not sue. It's cheap and easy to get a lawyer to write a letter. Not so cheap or easy to file a lawsuit. Until you get served a summons and complaint you are free to ignore the threats. Or, you are free to succumb to the threats. Up to you.



Of course they do. You would be foolish to pay them anything at this point.



An idle threat per that statute I quoted.

If you do end up getting sued, one defense is lack of mitigation. The Texas Court of Appeals explains mitigation:

Section 91.006 of the Texas Property Code requires a landlord to mitigate his damages after the breach of a lease and declares void any lease provision to the contrary. See TEX. PROP.CODE ANN. § 91.006 (Vernon Supp.2005); Lunsford Consulting Group, Inc. v. Crescent Real Estate Funding VIII, L.P., 77 S.W.3d 473, 476 (Tex.App.-Houston [1st Dist.] 2002, no pet.); see also Austin Hill Country Realty, Inc. v. Palisades Plaza, Inc., 948 S.W.2d 293, 299-300 (Tex.1997), abrogated, in part, by TEX. PROP.CODE ANN. § 91.006.

The tenant bears the burden of proof to demonstrate that the landlord has mitigated or failed to mitigate damages and the amount by which the landlord reduced or could have reduced his damages. See Austin Hill Country Realty, 948 S.W.2d at 299.

A tenant's contention that the landlord failed to mitigate his damages must be pleaded as an affirmative defense. See Austin Hill Country Realty, 948 S.W.2d at 300. However, when a tenant contends that the landlord has actually mitigated his damages, the breaching tenant 278*278 need not plead the landlord's actual mitigation as an affirmative defense. See Austin Hill Country Realty, 948 S.W.2d at 300. Rather, the tenant's evidence of the landlord's mitigation tends to rebut the measure of damages under the landlord's claim of breach and may be admitted under a general denial. See Austin Hill Country Realty, 948 S.W.2d at 300. The offset of a landlord's breach of lease damages by the amount he was able to mitigate his damages raises a fact issue regarding the reasonableness of the offset, precluding summary judgment. See Nautilus Training Ctr. No. 2, Inc. v. Seafirst Leasing Corp., 647 S.W.2d 344, 347 (Tex. App.-Corpus Christi 1982, no writ).

Google Scholar

There are many other Texas case decisions involving that statute:

91.006 - Google Scholar

It would be a good idea for you to consult a real estate attorney regarding mitigation and see if it's worth responding to the landlord's attorney with an admonition to mitigate or to wait until a lawsuit occurs and then sandbag the plaintiff with a mitigation defense.

Meantime, I suggest you take dated photos of the "For Lease" sign and check Craigslist and your local paper's real estate ads to see if the landlord is doing any advertising.

Another option is to negotiate a lump sum full and final cash settlement (in writing, of course). Best to have a lawyer do that for you.

Your leverage is holding on to your money while your enemy isn't getting any.

Also understand that the above is not legal advice and if you act on my comments you do so at your own risk.

The new owners called since we didn't respond to their attorneys demand. He knows that the previous owner knew we were leaving and should have told them and the could have lowered the purchase price.

He gave me 2 options. Settle or go to court. Settling was greater than the past due and a great portion of future rent.

I told him we don't have the amount he wants to settle and we have to do option 2. He then asked for the recorded statement from the previous owner and will have his attorney talk to the previous owner.

Doesn't seem the new owner wants to goto court, would you give him the audio?

 

[adjusterjack]

He gave me 2 options. Settle or go to court. Settling was greater than the past due and a great portion of future rent.

I told him we don't have the amount he wants to settle

That was the wrong answer. The right answer should have been. I don't owe you a nickel. Might not have don't any harm but, in the future, any time anybody accuses you of wrongdoing and wants money for it the right answer is: I did nothing wrong and I don't owe you anything."

He then asked for the recorded statement from the previous owner and will have his attorney talk to the previous owner.

Doesn't seem the new owner wants to go to court, would you give him the audio?

I have a theory that I call the "want-have theory of leverage."

When someone wants what you have, you have leverage. If that recording could be of any use to the new owner then you have leverage and can demand written concessions in exchange for a copy.

If I were in your shoes I would say "Sure, you can have the recording in exchange for (without any admission of liability on my part) a written agreement releasing me from any claims arising out of the rental of the property or, you are welcome to sue me and I will use the recording in court to prove that I don't owe you anything."

If he agrees, make sure YOU hire a lawyer to write up the agreement. Don't rely on his lawyer to do it.

 

[CDobby]

That was the wrong answer. The right answer should have been. I don't owe you a nickel. Might not have don't any harm but, in the future, any time anybody accuses you of wrongdoing and wants money for it the right answer is: I did nothing wrong and I don't owe you anything."



I have a theory that I call the "want-have theory of leverage."

When someone wants what you have, you have leverage. If that recording could be of any use to the new owner then you have leverage and can demand written concessions in exchange for a copy.

If I were in your shoes I would say "Sure, you can have the recording in exchange for (without any admission of liability on my part) a written agreement releasing me from any claims arising out of the rental of the property or, you are welcome to sue me and I will use the recording in court to prove that I don't owe you anything."

If he agrees, make sure YOU hire a lawyer to write up the agreement. Don't rely on his lawyer to do it.

Nice to know what you would have done. Thank you!

 

[mightymoose]

I agree with the last comment.
If you provide a recording that he wants and stands to benefit him, make sure you get something in return- a written release of liability.

 

[army judge]

Doesn't seem the new owner wants to goto court, would you give him the audio?

I rarely discuss any aspect of my client's case with the other side.
I would never suggest to my client to speak with the other attorney, off or on the record.
However, you did.
I don't think you harmed yourself, no matter what he or she does with the conversation, as long as it coincides with your recitation here.

I see this as a stalemate, for the moment.

The LL's reluctance to formally bring a civil suit leads me to believe there is some merit in your position, that you might not even know about.

I suggest you think about the events over the last six months, try to list them, and then study your lease (or the terms you discussed).

I see one area of vulnerability as dummy looking in without all the details you possess.
That, mate, is the LLC.
You seem not to be worried about that, and you could be right.
I'd look into the LLC a tad more, while you're cogitating.

Good luck, and feel free to return if a light bulb blinks, or even flickers.

 

[CDobby]

Thank you. I never talked with their attorney. The new owners called me directly. Nonetheless I made sure he knew the previous owner knew that we were leaving at the end of the month, prior to the sale. The previous owner had an obligation to let the new owner know we would not be in the space prior to the sale.

 

[army judge]

Thank you. I never talked with their attorney. The new owners called me directly. Nonetheless I made sure he knew the previous owner knew that we were leaving at the end of the month, prior to the sale. The previous owner had an obligation to let the new owner know we would not be in the space prior to the sale.

That tidbit might be your lifeline.

The conversations, along with the permissions given to you by the former owner are indeed, valid, useful, and applicable.

More than that, they're binding on the new owner.

 

[CDobby]

I rarely discuss any aspect of my client's case with the other side.
I would never suggest to my client to speak with the other attorney, off or on the record.
However, you did.
I don't think you harmed yourself, no matter what he or she does with the conversation, as long as it coincides with your recitation here.

I see this as a stalemate, for the moment.

The LL's reluctance to formally bring a civil suit leads me to believe there is some merit in your position, that you might not even know about.

I suggest you think about the events over the last six months, try to list them, and then study your lease (or the terms you discussed).

I see one area of vulnerability as dummy looking in without all the details you possess.
That, mate, is the LLC.
You seem not to be worried about that, and you could be right.
I'd look into the LLC a tad more, while you're cogitating.

Good luck, and feel free to return if a light bulb blinks, or even flickers.

I do have concerns about the LLC and the assets. It's all tricky because we personally Guaranteed. Trying to save our personal and business new locations assets.

 

[army judge]

I do have concerns about the LLC and the assets. It's all tricky because we personally Guaranteed. Trying to save our personal and business new locations assets.

As suggested earlier, hire yourselves a lawyer.

Free information gleaned off of the internet will be of little value in assisting you with the protections you seek.

You might also discuss a chapter 7 bankruptcy, as that is the only sure fire way to protect your assets.

 

[CDobby]

As suggested earlier, hire yourselves a lawyer.

Free information gleaned off of the internet will be of little value in assisting you with the protections you seek.

You might also discuss a chapter 7 bankruptcy, as that is the only sure fire way to protect your assets.

Thank you!