Question 1

What is a kick-out provision in Florida commercial real estate?

Accepted Answer

In commercial real estate, a kick-out provision is a lease clause that allows the tenant (not the landlord) to terminate the lease early under specified conditions. The most common form: a retail tenant can terminate the lease if their gross sales fall below a specified threshold for a defined period (typically two consecutive years). This protects the tenant from being locked into a long-term lease at a location that is not generating sufficient revenue. Other kick-out triggers: failure of a co-tenancy condition (the anchor tenant leaves), the landlord fails to complete promised improvements by a specified date, or the building occupancy falls below a specified level.

Question 2

How does a commercial kick-out provision differ from a residential kick-out clause?

Accepted Answer

Key differences: a residential kick-out clause is a seller’s right in a purchase contract (the seller can terminate if a better offer arrives). A commercial kick-out provision is a tenant’s right in a lease (the tenant can terminate if business conditions deteriorate). The residential version protects the seller during a contingent sale. The commercial version protects the tenant from underperformance. Both involve early termination rights, but they operate in completely different contexts and protect different parties. Commercial kick-out provisions are heavily negotiated: the sales threshold, the measurement period, the notice requirements, the termination fee, and the effective date of termination are all subject to negotiation.

Question 3

What fees are associated with exercising a commercial kick-out provision in Florida?

Accepted Answer

Termination fees: most commercial kick-out provisions require the tenant to pay a termination fee to exercise the right. The fee may be: a flat dollar amount specified in the lease, unamortized tenant improvement costs (the landlord recovers the TI investment), unamortized leasing commissions (the landlord recovers the broker fees), a multiple of monthly rent (typically 3-12 months), or a combination of these elements. The fee compensates the landlord for the lost rental income and unrecovered investments. Some leases also require the tenant to provide 6-12 months advance notice of termination. The total cost of exercising the kick-out (fee + remaining obligations + relocation costs) should be weighed against the cost of continuing to operate at the underperforming location.

Kick-Out Provision

Kick-Out Provisions in Florida Commercial Real Estate

Common Triggers

Commercial vs. Residential Kick-Out

Termination Fees

Related Terms

Barnes Walker Commercial Leasing

Ready to Get Started?