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{Funnelist Market Watch} Recapture Right - Time for a Timing Change?

04/16/2014
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Historically a recapture right has been one of the options an ownership has in commercial leases.  It is usually triggered at the time a tenant presents an executed sublease to the landlord for consent, at which time the landlord can either elect to (a) approve (or in unique cases refuse) the sublease, or (b) recapture the premises. 

My experience on both sides of the landlord/tenant world is that if an owner wants the space for reasons that make economic sense, it becomes a waiting game while the existing tenant finds a replacement tenant and completes a sublease, only to see the owner recapture and have both parties frustrated over the time and money spent negotiating the sublease.

A refinement of the sublease notice provision helps alleviate some of this problem:

In the event Tenant desires to market all or any portion of the Premises for sublease, Tenant shall provide written notice to Landlord of such desire at least thirty (30) days prior to the date Tenant proposes to market the subject space.  Landlord shall have fifteen (15) business days after receipt of Tenant’s notice to exercise its right of recapture.  If Landlord does not exercise its right of recapture and no sublease is consummated on the subject space within six (6) months of Tenant’s initial notice date, Landlord’s recapture right shall be reinstated.

Benefits to the tenant:

- Knows it can market the space with a clear timeline for performance, or,

- Knows the lease obligation is terminated, allowing for a clean exit.

Benefits to the landlord:

- Has immediate control once formal notice is given.

- Has a second bite if something changes over the next six months.

- Happy to consent and, if above base rent, participate in the upside through profit-sharing.

Given today’s dynamic market conditions, having a clear path for all parties on this issue makes more sense than ever.

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By: Meade Boutwell

LEED® AP O&M | Senior Vice President, CBRE

Meade Boutwell, LEED AP O&M, is a senior vice president for CBRE and a 29-year veteran in the industry. During the course of his career, Mr. Boutwell has sold, leased or subleased more than 9 million feet of commercial space in San Francisco. 

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Follow Meade on Twitter: @MeadeSF

Follow CBRE on Twitter: @CBRE

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