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What commercial landlords should know about recapture clauses

| Dec 28, 2020 | Real Estate Law |

Recapture clauses are common in commercial leases. This type of clause allows a landlord to end the lease prior to its expiration and reclaim the property under certain circumstances. Those circumstances, or triggering events, need to be spelled out in the lease.

What are common events that trigger the “recapture” of a property?

Probably the most common one is if a tenant wants to sublease or “assign” the property to someone else. That’s why landlords and tenants often negotiate the assignment portion of the lease and the recapture portion together. Tenants will sometimes try to sublease their property for the duration of the lease if they’re going to be closing their business or perhaps if they’re moving to another location. It’s in the landlord’s best interests to keep the verbiage vague so that they can invoke the recapture agreement if a tenant asks to sublease the property.

Another common trigger event that is often included in the recapture clause involves the tenant’s revenue. If the lease states that the landlord gets a percentage of the revenue earned by the tenant in addition to rent, they can stipulate a floor for that revenue.

In a “percentage lease,” tenants and landlords can work out what percentage of revenue the landlord will receive as well as at what point the recapture clause can be invoked based on a drop in revenue. If the revenue falls below that for whatever period is specified, the landlord has the right to end the lease prematurely so they can find a tenant who’s more profitable for them.

Why you need legal guidance when negotiating a commercial lease

Recapture clauses are just one portion of a commercial lease that landlords and tenants need to fully understand. These leases can be extremely complicated, and it’s only too easy to sign away your rights as a landlord without realizing it.

That’s why it’s worthwhile to work with an experienced attorney as you review and negotiate your lease. They can help you protect your interests. They can also assist you if you have a dispute with a tenant later over the terms of the lease.