Tailor Recapture Terms to Your Needs

June 15, 2017
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Many leases will provide that if a tenant wants to assign the lease or sublease all or any portion of the space it leases, the owner will have the right to recapture—that is, take back—the space. While both an assignment and sublet of a lease seem to be fairly simple ways to get rid of—either temporarily or permanently—the space you don’t need, in reality they can be very tricky. Beware of giving the owner carte blanche control over an important issue like the amount of space it can recapture and when it can do so. Ask yourself first what suits your needs.

A common problem for tenants is outgrowing their space as their business expands. If you’re unsure whether that’s a possibility for your business—in which case you’ll want to give most or all of the space back to the owner—and you want to reserve the right to sublease smaller portions of your space on your own to a subtenant, you can specify that the owner’s recapture option kicks in only if you intend to assign the lease or sublease substantially all of the premises for substantially all of the remainder of the term—for example, 90 percent of the premises for a term expiring during the last year.

In this case, the tenant is not warehousing the space, but has truly outgrown it and it doesn’t see itself occupying the space in the long term. So, take a hard look at your business plan before negotiations and try to tailor the terms to fit potential outcomes and what they would mean for your commercial space needs. 

For more about what to include in your recapture clause, see “Keep Recapture Option Flexible for Future Needs,” available to subscribers here