Under some circumstances recapture provisions can offer
substantial benefits to both landlord and tenant. The tenant is
relieved of its future performance obligations, and the landlord
can put the premises to better use, in a direct relationship with a
new tenant, perhaps gaining rent at a newly higher market rate or a
lease for a longer term. In the situation where the tenant has
outgrown its space, or needs to move to a smaller space and
determines to offer the lease for assignment or the premises space
for sublease, the tenant may have to reconcile this business
decision with a cost of transfer. Like all lease provisions,
recapture provisions can contain traps for the unwary.
In negotiating a new lease, landlords and tenants both would do
well to pay particular attention to the language of the recapture
provision that describes the triggering event. Landlords will want
to have some certainty as to whether or not the tenant has
triggered the provision. A well drafted recapture provision will
allow the landlord the option to dispossess the tenant of the
premises and avoid allegations of breach of the lease. Provisions
often found in retail leases allowing the landlord to recapture if
the tenant's business "goes dark" for a certain
number of days will require very specific definitions of the
various events under tenant's control that could trigger the
recapture. In addition, tenants will want a certain time limit on
how long the landlord must wait, or may wait, before exercising its
right.
With a typical office recapture provision – a right to
recapture when the tenant proposes an assignment or a sublet
– tenants will want to limit the level of effort and
expenditure required on tenant's part before the landlord's
recapture right is ripe. A lease that requires tenant to engage a
broker, advertise the space, find a subtenant and fully negotiate
the sublease before the landlord must make its determination to
recapture will have a severe chilling effect on the tenant's
ability sublease. The landlord in this example will want the
recapture provision to include adequate time for due diligence on
the proposed assignee or subtenant and any potential new tenant
before it has to make a decision to recapture the space.
Careful consideration of this provision during lease negotiation
will, if actioned on a later date, provide both parties with
greater certainty over the course of the lease term.
This article is presented for informational purposes only and is not intended to constitute legal advice.