Retail tenant conflict; Can LL cancel lease prior to move-in?

4 Replies

I manage a retail building with five units. Recently, there were two vacancies. One unit was leased to a vintage clothing store. A month later, another clothing store was interested in leasing the second unit, two doors down. I mentioned this to the co-owner of the existing store. We felt that the second store has a somewhat different target market, so it shouldn't be a problem having them both as tenants. The co-owner said he wouldn't have a problem with it. He told the other co-owner and they didn't contact me to express any objection.

Two days later, the second clothing store signed a lease and paid a deposit. I introduced the owner to the other tenants, including the owners of the original clothing store. This time, the second co-owner was there. Turns out he's the numbers guy and principal investor, whereas the guy I spoke with before is the store manager/sweat equity partner. He strongly objected to the new tenant moving in, feeling they would be a direct competitor who will dilute their business and ROI. The new tenant wants to move in and isn't concerned about the competition, but he did appreciate the other store owner's pov.

All said, I think it's best that I try to rescind the lease before they move in. Although the lease was signed by both parties, I haven't deposited the check he gave me. Hopefully the owner will agree to cancel the agreement and we'll move on. This would be fair to the original store's owners. Furthermore if the new store were to move in, over 30% of GLA will be clothing, which is rather high.

However, he wouldn't take back the check when I tried to give it to him, which concerns me a bit. He's weighing his options. Legally, can I unilaterally cancel/rescind the lease prior to the lease commencement date? If I try to do so, what recourse if any, would he have?

Of course, the other view is, it's purely a business decision. Competition is everywhere and the old tenant will just have to deal with it. If I pass on this new tenant, there's no telling how long it'll take to find an equally good tenant. There was nothing in the original store's lease prohibiting me from renting to competing tenants. Thanks in advance for any thoughts/opinions.

Sorry I do not have advice for you but I'm curious why you are saying it's best to rescind the offer before they move in? I just don't see why, from where you are, you would make the decision to not rent it out.

I was thinking it may be necessary to rescind the agreement if the tenant insists on moving in, which he may have a right to do since the lease was signed by both parties. I did not deposit his check however, so it might not be considered a binding contract (no consideration was accepted). I'll consult with a lawyer if the need arises.

Im wondering *why* you think its necessary to rescind the agreement? I'm sure you want a tenant in the unit and you have a tenant that wants to move in so I'm just wondering what is making you want to stop that from moving forward. I'm only asking because there may be something I'm overlooking that could be a lesson for me in the future.

I think it would be better to lease the unit to a different type of business. Leasing to the second store would hurt the first one and would reduce the diversity of the tenant mix. Plus, I think I can fill the vacancy quickly, leasing it to one of the other interested parties. Like I said, hopefully he'll agree to cancel. If he doesn't, I may have to honor the lease, instead of paying the legal fees involved to contest it.