What This Clause Means
How kick-out clauses in retail leases work: the sales thresholds that trigger them, who can use them, and how landlord-vs-tenant kick-outs differ.
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. Break-even math frames the analysis: total occupancy cost (rent plus NNN) plus cost of goods and labor, divided by gross margin, gives the sales level at which the tenant breaks even. A kick-out trigger set at 80% of break-even marks the point at which continuing operations is clearly not viable. When a landlord won't agree to a realistic floor, whether the proposed floor makes economic sense for the tenant's business model becomes the question that decides the clause's value.
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. Negotiated versions of this clause commonly include 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 — the deciding comparison is 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 Happens When a Landlord's Kick-Out Is Triggered
For a tenant on the receiving side of a landlord kick-out clause — meaning the landlord has the right to terminate the lease early — that contingency is part of the business plan from day one, starting with the exercise window and notice requirements. When a landlord gives notice of termination under a kick-out clause, whether the notice complies with all procedural requirements is the first question examined — landlord kick-out clause terminations are commonly found defective where notice was given outside the window or failed to meet notice formalities. If the termination is valid, relocation has to happen on the timeline specified, which may be challenging in the middle of a busy season.
Common Red Flags
- Landlord kick-out rights are commonly limited — or eliminated entirely — in negotiated leases
- Tenant kick-outs based on sales performance are commonly negotiated with realistic thresholds
- Better-drafted clauses build in a minimum protection period (2–3 years) before any kick-out can be exercised
- Significant notice periods (6+ months) for any landlord kick-out are a common negotiated protection
- Tenant-favorable versions include fair compensation or a moving allowance if the landlord exercises the kick-out
How This Clause Is Commonly Negotiated
Tenant-favorable kick-out clauses commonly set the sales floor at 80% of the tenant's 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). Landlord kick-out clauses are commonly eliminated in negotiation; where one survives, negotiated versions narrow the exercise window to a short period in year 4 only, require 180 days notice, and require payment of the tenant's relocation costs.
- Landlord kick-out rights are commonly limited — or eliminated entirely — in negotiated leases
- Tenant kick-outs based on sales performance are commonly negotiated with realistic thresholds
- Better-drafted clauses build in a minimum protection period (2–3 years) before any kick-out can be exercised
- Significant notice periods (6+ months) for any landlord kick-out are a common negotiated protection
- Tenant-favorable versions include fair compensation or a moving allowance if the landlord exercises the 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. Tenants commonly negotiate to remove landlord kick-out rights entirely — they create business instability and force expensive relocations.
- Should I negotiate a kick-out clause for myself?
- Tenants commonly negotiate one — a tenant kick-out right tied to sales performance is valuable. If the location underperforms despite the tenant's best efforts, the clause provides an 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. Well-drafted thresholds are set realistically — too low and it never triggers even in a failing location; too high and it triggers before the tenant has fully ramped up.
- How much notice is required for a kick-out?
- It depends on the lease. Tenants commonly negotiate the longest possible notice period for landlord kick-outs (6 months minimum) and the shortest period for their own kick-out (30–60 days). Better-drafted notice periods begin from an objective event, not landlord discretion.