What This Clause Means
Retail tenants negotiate kick-out clauses as a safety valve — if sales don't hit a floor, you get out. Landlords negotiate kick-out clauses as a recapture right — if your lease is too favorable, they can take the space back. Understanding which type of kick-out clause is in your lease matters enormously.
Tenant Kick-Out Clauses Are Performance-Based Early Termination Rights
A tenant-friendly kick-out clause gives the tenant the right to terminate the lease if sales fall below a specified minimum during a defined measurement period. Example: 'Tenant may terminate this Lease by providing 90 days written notice if Gross Sales for any consecutive 12-month period are less than $500,000, provided such notice is given no earlier than the 24th month of the Lease Term.' This clause is valuable because it creates a defined exit path when the location isn't working economically. Without it, a retailer whose location fails must either continue operating at a loss, default and face damages, or negotiate an expensive buyout.
Landlord Kick-Out Clauses Work in the Opposite Direction
A landlord-friendly kick-out clause gives the landlord the right to terminate the lease — typically during a specified window — often to pursue a more favorable deal with a different tenant. Example: 'Landlord shall have the right to terminate this Lease on 180 days written notice during the period between the 3rd and 5th anniversary of the Commencement Date if Landlord has received a bona fide offer from a prospective tenant willing to lease the Premises at a rent greater than [X] per square foot.' This is sometimes called a 'landlord's recapture right' and it exists to give landlords flexibility in improving lease economics — which is directly at the tenant's expense.
Tenant Kick-Out Sales Floors Must Be Set Realistically
The value of a tenant kick-out clause depends entirely on where the sales floor is set. A sales floor set far below any realistic failure scenario is worthless protection — the tenant never gets to use it. A sales floor set realistically at the tenant's break-even sales level is genuinely valuable. Calculate your break-even first: total occupancy cost (rent plus NNN) plus cost of goods and labor, divided by your gross margin, gives you the sales level at which you break even. Set your kick-out trigger at 80% of break-even — the point at which continuing operations is clearly not viable. If the landlord won't agree to a realistic floor, document the proposed floor and whether it makes economic sense for your business model.
Kick-Out Clause Timing and Notice Requirements Affect Practical Usability
Kick-out clauses with narrow exercise windows or long advance notice requirements may be practically unusable. A kick-out right that must be exercised between months 24 and 26 of a lease — a 2-month window in year 2 — requires you to make your exercise decision with only 2 years of operating history, before many businesses reach profitability. Similarly, a 180-day advance notice requirement on a kick-out clause means you must decide 6 months before you actually leave — potentially committing to departure before you've confirmed you can get out. Push for multiple exercise windows (every 12 months) and 60–90 day advance notice rather than 180 days.
Kick-Out Clauses Often Require Penalties Even for Tenant-Favorable Versions
Even tenant-favorable kick-out clauses typically require payment of some amount upon exercise — often equal to the unamortized landlord costs (TIA, landlord buildout costs, leasing commissions) plus a portion of the remaining base rent. A kick-out clause that requires payment of $200,000 in unamortized costs to exercise might still be worth having — but you need to model whether the kick-out payment is cheaper than the ongoing losses of continuing to operate a poor-performing location. In many cases it is. The alternative — a contested default or negotiated buyout with no established price — is usually more expensive than a predetermined kick-out payment.
What to Do If Your Landlord's Kick-Out Is Triggered
If you're on the tenant side of a landlord kick-out clause — meaning the landlord has the right to terminate your lease early — you need to plan for that contingency from day one. Know the exercise window and notice requirements. If the landlord gives notice of termination under the kick-out clause, confirm the notice complies with all procedural requirements — courts have found landlord kick-out clause terminations defective because they were given outside the window or failed to meet notice formalities. If the termination is valid, you'll need to arrange relocation on the timeline specified, which may be challenging if you're in the middle of your busy season.
What to Watch Out For
- Ensure landlord kick-out rights are limited or eliminated entirely
- Negotiate tenant kick-out based on sales performance tied to realistic thresholds
- Build in a minimum protection period (2–3 years) before any kick-out can be exercised
- Require significant notice periods (6+ months) for any landlord kick-out
- Include fair compensation or moving allowance if landlord exercises kick-out
How to Negotiate This Clause
For a tenant kick-out clause: set the sales floor at 80% of your break-even sales level; allow exercise every 12 months after year 2; use 90 days advance notice; and cap the kick-out payment at actual unamortized landlord costs (not a formula). For a landlord kick-out clause: push to eliminate it; if you can't, narrow the exercise window to a short period in year 4 only, require 180 days notice, and require payment of your relocation costs.
- Ensure landlord kick-out rights are limited or eliminated entirely
- Negotiate tenant kick-out based on sales performance tied to realistic thresholds
- Build in a minimum protection period (2–3 years) before any kick-out can be exercised
- Require significant notice periods (6+ months) for any landlord kick-out
- Include fair compensation or moving allowance if landlord exercises kick-out
Example Language: Bad vs. Better
Landlord-Friendly (Risky)
"Landlord reserves the right to terminate this Lease upon 90 days written notice if Landlord receives a bona fide offer from a prospective tenant willing to pay Base Rent at least 15% higher than Tenant's current Base Rent."
Tenant-Friendly (Better)
"Tenant may terminate this Lease if Gross Sales for any 12-month period are less than $[threshold], by providing 60 days written notice within 90 days after such period ends. Landlord may not exercise any termination right during the first 3 years of the Lease Term."
Frequently Asked Questions
- What is a kick-out clause in a commercial lease?
- A kick-out clause allows one or both parties to terminate the lease if specified conditions aren't met. Common triggers include sales performance thresholds, anchor tenant departure, or a landlord receiving a better offer.
- Can a landlord kick me out if they get a better offer?
- If the lease includes a landlord kick-out right, yes. This is unusual but not unheard of. Fight to remove landlord kick-out rights entirely — they create business instability and force expensive relocations.
- Should I negotiate a kick-out clause for myself?
- Yes — a tenant kick-out right tied to sales performance is valuable. If the location underperforms despite your best efforts, you want the ability to exit without paying full remaining lease obligations.
- What is a sales performance kick-out threshold?
- It's the minimum annual gross sales level the tenant must achieve to avoid triggering their kick-out right. Set it realistically — too low and it never triggers even in a failing location; too high and it triggers before you've fully ramped up.
- How much notice is required for a kick-out?
- It depends on the lease. Negotiate for the longest possible notice period for landlord kick-outs (6 months minimum) and shortest period for your own kick-out (30–60 days). Notice periods should begin from an objective event, not landlord discretion.