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What Happens to a Commercial Lease if a Tenant Dies

Whether a landlord or tenant, understanding what will happen in the event of death is important when entering into a commercial lease. Keep reading to learn more!

If you are a business owner that requires a physical space, such as an independent bookstore, restaurant, or clothing store, it is likely that you rent out the property your business inhabits. Often, it can be easier to rent the property rather than purchasing it outright, as you may not have the funds to purchase the property, or you may be looking to rent out a space in a larger building. When you rent property for business purposes, it is known as a commercial lease, as it is a rental agreement made specifically for business transactions. 

As you begin to create your Estate Plan, you may wonder about how your commercial lease will affect your overall Estate Plan and what you need to do to prepare for your death regarding your commercial lease. As a commercial lease landlord, you may also be wondering what will happen in the event that your tenant dies and your contract is not up. These are all important questions that you will want answered when entering a commercial lease. Trust & Will, a leader in online Estate Planning services, understands the importance of this and wants to help give you the answers you are looking for. That is why in this article we will cover commercial leases, what happens when a tenant passes away, and the steps that will need to be taken.

Does a Commercial Lease End When a Tenant Dies?

When you pass away, your commercial lease does not immediately end. However, it may be possible to have a commercial lease terminated after your death. Often, commercial leases can be much longer contracts, and often with long-term contracts, there can be clauses that allow for the lease to be ended upon the death of the tenant. It will be important to consult your contract to determine what the rules are regarding your specific contract. For this reason, it will be vital to read your contract thoroughly so that you know what you are signing up for in advance.

It is important to note that you cannot end a commercial lease in all cases, and you may still be legally obligated to fulfill the remainder of your contract even after your death.

How to End a Commercial Lease

If you have the option to terminate a commercial lease upon your death, it does not happen automatically following your passing. The landlord of your commercial lease will need to be notified upon the death of the tenant to begin the process of ending the lease. This responsibility will fall to the Executor of Estate and in the case that there is not a named Executor of Estate, it will be the responsibility of a court-appointed administrator.

Regardless of whether you can terminate your lease, someone will need to notify the landlord that their tenant has passed so they may take the necessary next steps. As a landlord, it will be important to receive written documentation of the tenant’s passing for your files.

If a Commercial Lease Cannot Be Terminated, What Happens Next?

If a commercial lease cannot be terminated, the commercial lease will become a part of the Estate with the rest of the deceased’s assets, which includes cars, property, houses, and more. As part of the Estate, the commercial lease will be settled in probate court, which is the process in which all affairs are settled. Here, the Executor of Estate or court-appointed administrator will represent the deceased and their assets to ensure that all stipulations within their Will are met. 

In probate court, all debt owed in the deceased’s commercial lease will be taken care of. The remaining finances of the deceased will be used to pay off what is owed. In the event that the remaining finances are not sufficient to repay the commercial lease in full, additional assets can be sold to help repay debts, such as cars and homes. 

What Happens When You Do Not Want to Terminate the Commercial Lease?

If there is a co-signer of the commercial lease, the process will be different. It is possible that you may have a joint business partner who intends to keep the business alive after your death who does not want the lease to end. In this case, it is possible that your co-signer will continue on as the sole owner of your commercial lease. The exact regulations regarding this will depend upon your agreement with your business partner and your commercial lease contract.

It is also possible that when you pass, you plan to leave your business to your next of kin. In this situation, you may plan to pass on the commercial lease to the new owner upon your death. Again, the exact rules regarding the transfer of a commercial lease and whether this is possible will depend upon your specific contract, making it vital to read your entire contract in full before signing to understand your rights. It will also be important in this situation to designate who you plan to have inherit your commercial lease upon your death within your Estate Plan. An example of where to designate this would be within your Will, which is one of the many services that Trust & Will has to offer.

Creating your Estate Plan and ensuring that all aspects of your affairs, including your commercial lease, are accounted for can feel like a time consuming and challenging process. However, it is not one you will want to put off as you can never know what the future may hold. Trust & Will wants to help make creating a comprehensive Estate Plan easier with our online services. Unsure where to start? Take our free online quiz to point you in the right direction.