If I own a dance studio but just lost a large amount of students and will not be able to pay my rent, what can I do?

I have a year left on my lease. Do I have too claim bankruptcy?

Asked on August 18, 2014 under Real Estate Law, California

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 6 years ago | Contributor

If you can't pay your rent, your landlord could, once you default (fail to pay when rent is due), evict you *and* sue you for the rest of the money due under the lease, for the remainder of the lease term. Here are your options:

1) Talk to your landlord: maybe he/she would let you out of the lease, particularly if you either find another tenant to take over or if you pay some penalty (e.g. maybe pay 2 months rent as a penalty).

2) Or talk to your landlord to see if the landlord will give you a break on the rent--he or she might, as opposed to having vacant space once you are out.

3) Sublet, if your lease doesn't prohibit it. Maybe you can find another dance or fitness studio that will take over some of the space, or take over all of the space part time, for example, and get enough from them to make your rent.

4) If the tenant is not you personally but is an LLC or corporation *and* you did not personally guaranty the rent, then only the business (the LLC or corp.) is liable for the rent. If you can't work things out as above, you could potentially walk on the lease and only the money, if any, in the company is at stake. You can't do this is you personally are on the lease or guaranteed it.

5) If all else fails and you personally are liable for more than you can afford to pay, you can then file bankruptcy, but that should be a last resort. Bankruptcy will let your reduce or eliminate debts (including under the lease) and will *temporarily* stay, or halt, eviction; but it will do signficant damage to your credit for years to come.


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