Recapture Clause Definition
A recapture clause is defined as a lease provision that allows the landlord to terminate a lease and retain possession of a property.
This type of clause is very common in commercial real estate deals. The property owner and lessee negotiate the details of the clause. Once decided on, they are included in the lease agreement. The most important detail of this type of clause is the trigger. This is the event that allows a landlord to take the property back.
Recapture Clause Trigger
A common trigger for a recapture clause is a tenant wanting to sublet their space. The recapture clause is often closely related to an assignment clause. If a tenant business starts performing poorly, they will want to sublet their property to another business. This is better than defaulting on their lease.
However, the landlord may prefer to initiate a new lease for the new company, and so will call upon the recapture clause in the lease. For this reason, the language used when dealing with this type of clause is often vague to allow the landlord flexibility if this situation arises.
Real Estate Term Tuesday
Another common trigger is the level of revenue a tenant generates. This one is a little more obvious because a landlord does not want a tenant to default on the lease or stop paying rent, so they want the option to get out of the agreement before things get that bad.
This is most common in percentage leases. This is where a tenant pays base rent plus an additional percentage to the landlord. If the revenue dips below a certain level and there is a recapture clause in place, the landlord can take the property back and can bring in another tenant in hopes of bringing revenue back up.
What Are Recapture Rights?
These rights allow a landlord to terminate any lease or a portion of that lease for a particular transferred space. It allows the landlord to receive the full value of that leased property.
