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James Millar
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Negotiation is in everyone’s interests so I recommend playing that card. Some things to make sure of if there is no sublease available.

1. Get advice on bankruptcy before trying to negotiate a settlement.

2. Let the agent / lessor know that you have limited or no capacity to settle the full liability. This is probably the most important part of it. Like poker – if they think you are bluffing they will call you on it. Demonstrate as best you can there is nothing and bankruptcy serves no one’s interests. Make sure the real estate agents are relaying this to the lessor (which they often don’t do). The lessor is the one out of pocket and he needs to make the risk assessment for this. Agents don’t generally care about either party (despite claims to contrary).

3. Propose an alternative settlement arrangement that allows further clawback / reduction in the event that they find a new tenant.

Not to rub salt in the wounds but this should serve as a warning to other FS members that sign leases without consideration of the full liability. I see this all the time and it’s completely avoidable if an advisor looks over the lease before you sign it. We always discourage clients signing PG’s for commercial rents. If the landlord won’t budge on a PG condition then simply run a short first term (12 months with longer subsequent terms) to test the business concept. Caps your liability to one year which in most cases can be budgeted for in startup capital.

They have a good chance of negotiating a deal if they can demonstrate that bankruptcy is a loss for everyone.

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