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Business Contract and Commercial Lease Issues

Authored By: Iowa Legal Aid

Information

What should I do if I can’t pay my commercial lease for my business?
Commercial or business tenants do not enjoy the same protections as residential tenants under Iowa law.  Courts assume that business owners have more sophistication to enter contracts than regular consumers and are less likely to intervene, even if the contract seems “unfair.”  This is one reason why business owners should ask an attorney to review a contract before signing.   
The lease you signed lays out the consequences of not paying rent.  Each lease is different as far as whether you have a grace period to come up with the money, for example, or if you have to be given notice of a default.  Be aware that many commercial leases include contractual “liens” that lock out tenants from the premises.  These liens purport to give landlords the ability to lock out commercial tenants, seize the inventory or items inside the premises, and then terminate the lease and sue for the balance owed under the contract.  It is Iowa Legal Aid’s position that you cannot legally be removed, locked out, or otherwise excluded without notice and hearing.  Nevertheless, lots of landlords use self-help methods to evict, so business owners should be aware of this possibility.
If you think your inability to pay rent is temporary, you may be able to reach an agreement with your landlord to pay the back-owed rent through a rent abatement or forbearance agreement.  It is important to be realistic when thinking about the future, however, as you do not want to put off making hard decisions if the business is not thriving.  Sometimes, landlords will agree to give you time to liquidate inventory or move out if you communicate with them.   


If I can reach an agreement with my commercial landlord, what terms should be included?
Do commit your agreement to a signed writing including the basic terms agreed on (amount abated, when it’s due). Don’t rely on the good faith or memory of parties.  Getting agreements in writing helps make sure that both parties are on the same page and avoids headaches down the road.
Do consider things like due date and ability to prepay before the due date, for example.
Do state that you are not waiving any rights or remedies you would otherwise have under the lease.
Do put in a provision allowing the agreement to be signed in separate parts and electronically, if that is how the agreement will be signed.


What if I receive notice that I am being evicted from my business property?
Although commercial tenants have fewer rights, they still have some rights under Chapter 562 and Chapter 648 of the Iowa Code in addition to any rights established by the lease.  If you receive notice that you are being evicted from your business, you should call Iowa Legal Aid or another attorney right away to better understand your rights.  Deadlines are very short in these cases, so call as soon as possible.
Contact Iowa Legal Aid if you want help reviewing the terms of your lease or want help drafting a rent abatement or forbearance agreement.


I was kicked out of my business property and now the landlord is suing me for the balance of the lease term, which goes for another two years!  What should I do?

Don’t ignore any notices you get about the lawsuit, even if you feel overwhelmed.  If you do not participate in the lawsuit, the court could rule for the other side automatically.  Call Iowa Legal Aid or another attorney right away to discuss your rights and what you need to do to participate in the lawsuit.

While you can always ask a judge to decide the issues, you can also negotiate with the landlord to see if you can reach an agreement and avoid additional fees and costs. You may be able to agree on a lesser amount or to pay any amount in installments.

There are some issues you can raise in negotiation or in court. Landlords have a duty to mitigate their damages even if you left the premises before the lease term was up or if you couldn’t afford to keep paying rent.  This means they must act reasonably to find a new tenant to lease the space so that you are not responsible for all of the time left before the lease ends.  You may also have some luck reducing the amount owed if you tell the court about problems with the premises that hurt your business that the landlord was responsible for, like leaks, floods, electrical problems, odor issues, heating and cooling systems and more.  These kinds of problems might allow you to raise legal claims like breach of contract, negligence, or diminution of value (reduced value of the premises).  It can be hard to prove how these problems affected your business, however.

Iowa Legal Aid may be able to represent you in a lawsuit involving your commercial lease.  


What should I do if I cannot fulfill orders or contracts?
The first step is to review your contract.  Many contracts include terms that excuse a party from performing when there are things that happen outside of that party’s control.  These are sometimes called “act of God” terms.  You will have to look at your contract and see what it says.
If you don’t have a contract or your contract doesn’t address the situation, you’re not totally out of luck.  Common law does allow a contract to be terminated if the contract will be impossible or impractical to perform.  Depending on the specific facts of your situation, this may apply to you.  You may still have liability, though.  Iowa Legal Aid may be able to help you figure out how to best manage your risk if you cannot fulfill a contract.

 

Iowa Legal Aid provides help to low-income Iowans. 

To apply for help from Iowa Legal Aid:

  • Call 800-532-1275.
  • Iowans age 60 and over, call 800-992-8161.
  • Apply online at iowalegalaid.org
 
 
If Iowa Legal Aid cannot help, look for an attorney on “Find A Lawyer” on the Iowa State Bar Association website iowabar.org.   A private attorney there can talk with you for a fee of $25 for 30 minutes of legal advice.
 
 
As you read this information, remember this article is not a substitute for legal advice.
Last Review and Update: May 05, 2022
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