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Last Updated: Apr 20th, 2005 - 18:45:27 |
A big advantage of leasing real estate instead of owning it is the ability to maintain flexibility. In addition to having options to expand or contract space under a lease, it is also possible to negotiate a cancellation option.
A tenant may decide to cancel a lease for a variety of reasons. Perhaps there is a need to expand or contract beyond what the lease allows, or perhaps the office needs to be closed altogether. Then again, the space might be just fine, but lower rental rates in the market may make it attractive to renegotiate the lease to achieve lower payments. Whatever the unforeseen conditions, a tenant with a cancellation option can have significant negotiating leverage with a landlord.
Landlords, of course, resist agreeing to cancellation options when negotiating leases. Furthermore, many brokers are reluctant to press the issue for fear of losing any chance of working with the building owner in the future. Because we are exclusively a tenant and buyer advocate, we have no such worries. We have found that in many instances, building owners will agree to a right to cancel a lease if that is made a top priority in the negotiation.
There is generally no direct additional cost associated with having a right to cancel a lease, but there is often a cancellation fee that is due if the cancellation right is exercised. The fee is usually tied to the landlord’s unamortized investment into the space upon tenant move-in at a pre-negotiated rate of interest. For more information on negotiating a cancellation option into your next lease, contact your local ATR office.
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