Kickouts

Hello landlords and tenants, I’m going to talk about “kick-outs” in a commercial real estate lease. My name is Jenna Zebrowski and I am the attorney behind LawByJZ.com. A kick-out is also known as a cancellation clause. And this can be great for retail tenants- if your location was perfect, but conditions change and you’re no longer making money, wouldn’t it be nice to be able to get out of your lease?

Kickouts are usually tied to certain conditions, such as vacancy rates or the presence of certain other stores or conditions. If you’re counting on synergy from other locations near you to drive traffic, you want to make sure that synergy is still there when you’re paying rent, and you’ll want to negotiate this before you start the lease, not when you’re ready to get out of it.

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Commercial Real Estate Case Study

Kickout: Leaving the Location When It’s Not the Right One

Ann owned a chain of small boutique gyms with a specific target audience, and the location of each gym was really key to her success. Ann spent a lot of time and money working with her real estate team to find the exactly right location for each gym. Her market research, and her success rate, indicated that her target demographic almost exactly overlapped with a particular chain store, so she made sure to insist that she would only lease space in shopping centers where this store was located, and then everything else would be negotiated from there.

Ann found out that the chain store was leaving the shopping center where one of her gyms was located and moving to another, newer center a few miles away.  The gym still had several years left on its lease, but she wanted to leave that location to follow the chain store. Ann knew she would lose a lot of her audience to the new shopping center, so she called in her attorney to help.

Ann told her attorney how important the synergy was with the chain store.  Every one of Ann’s lease had a kick-out clause negotiated into it.  Her tenancy was connected to that of the chain store- if the store left, she could kick out of, or leave the space and terminate the lease with no penalty. She could leave when the store did, even though the landlord didn’t want her to leave because she was a good rent-paying tenant.

Ann didn’t want to stay in an expensive location where she knew her customers weren’t, but the landlord promised a significant reduction in rent if she would stay open, since her business brought a lot of traffic to the shopping center, even without the chain store.  Ann agreed, because she knew she could still keep enough clients to stay profitable, and then she could still afford to open a new location in the new shopping center as well.