Liability for Lessor's Income under a Commercial Lease

[Andrew James]

Hello Everyone,

I wonder if someone could offer me some advice.

I have a commercial lease which expires in April, 2019.

The lessor owns the building next to mine in which he operates a fruit shop.

The lessor had fitted out the shop I am leasing as a butcher (he felt it would help his business as customers that came to the butcher would likely visit his shop also) and was looking for a butcher to basically just operate the shop as such.

I took the lease out some 2 years ago (and prior to me he had another butcher operating the shop as such).

For various reasons I do not wish to work the shop to the end of the lease and my question is this- if I just close the shop could I be in any way legally liable/responsible for any drop in his fruit shop income?

The lease I signed was just a straight commercial lease. Though not explicitly stated in the lease the rent was about $150/week higher than market value to compensate the lessor’s expense of fitting out (fridges/tables etc.) the shop (which which I was fine) and makes no mention of any responsibility/liability I would accept for the income (or change of income) in his business based on my activity (or lack of it). I certainly would not have signed such a lease if it did.

I did not buy a business from him. Again, it was just a straight forward lease though one clause specified the number of hours per week my shop would be open (which, at the time of signing, I interpreted to mean that, if I did not keep the shop open for the specified number of hours he would have the legal right to terminate the lease).

So, could there be any legal basis for him to sue me for any potential losses in his fruit shop business if I just shup up my shop?

I should just say, if I shut up shop, I have every intention to continue paying monthly rent until he finds another tenant or until the end of the lease term (which ever comes first)

 

[DMLegal]

Without seeing the lease it is impossible to give informed advice however it is unlikely you would be sued for damages as a consequence of not opening your shop. It would more likely just allow the landlord to terminate the lease which I don't think you would be too bothered about.

 

[Andrew James]

Dear DMLegal,

Thank you for your response.

I’d like to ask another question. Are you aware of any legal basis or legal precedent to recover lost income in the scenario I’ve described in my original question, assuming the connection between the 2 parties was just an ordinary/standard commercial lease?

 

[DMLegal]

Apologies for the slow reply. Just so I’m clear, are you asking if it is possible that a tenant would be sued by a landlord for loss of income?

 

[Andrew James]

Apologies for the slow reply. Just so I’m clear, are you asking if it is possible that a tenant would be sued by a landlord for loss of income?

Hi DMLegal, Thanks for your response.

Yes, I think that is the issue in a nutshell.

I have a standard commercial lease with the landlord.

Me running a business in the shop I lease from him benefits his shop/business (next to mine).

The lease I have signed in no way connects our businesses (it is just a standard commercial/rental lease- I am just renting the shop and fittings, although one clause stipulates that I will keep my business/shop open for a certain number of hours per week).

If I close up my shop his own shop income may be affected.

I will continue to pay rent up until the lease expires (another 6 months) but, beyond that, could I be in any way liable for any loss of his business’s income because I don’t run my business?

Any further advise would be much appreciated.

Thanks

 

[DMLegal]

Sure, I thought that is what you meant. The issue isn't so much related to liability for the loss of income incurred by the surrounding stores as a result of reduced traffic caused by your store being closed. The issue is whether failing to adhere to the clause that requires your store to be open x hours per week could constitute a fundamental breach of the lease, entitling the landlord to terminate the lease and thereby recovering costs incurred as a result of that (it is usually more than rent, you could also be liable for advertising etc.). Although, once a new tenant is found, you would not longer be liable for the rent, so it could work in your favor - if he terminates the lease after 2 months, and leases it to another person after 1 month, you could very well save yourself 3 months rent. In answer to your question - in and of itself, no, you wouldn't be liable for the reduced income by not opening your shop. Could not opening your shop lead to termination of the lease and/or damages for breach of the lease, maybe, it would depend on the lease although it would be unlikely given the clause is not likely to be all that significant in the scheme of things.