A kick-out clause is a retail lease provision that lets the tenant, the landlord, or both end the lease early if the store's gross sales fail to reach a stated threshold by a set date. It is a performance-based exit tied to a sales gate, giving an underperforming tenant a way out and a landlord a way to recapture space.
How Does a Kick-Out Clause Work?
A kick-out clause works by setting a sales threshold, a measurement period, and a notice window. Per Nesbitt Commercial Group and Barnes Walker, if gross sales fall below the threshold over the measurement period, the party holding the right can terminate. The metric is usually gross sales, though some clauses use customer traffic or co-tenancy occupancy as the gate.
The measurement period matters. Per practitioner guidance, the period should span at least 12 consecutive months to exclude seasonal swings, and tenants often push the test to the third lease year so the early honeymoon traffic of a new store does not inflate the result. Once the measurement period closes, a short notice window opens.
Element | Typical drafting |
Sales gate | A stated annual gross sales figure the store must reach |
Measurement period | At least 12 consecutive months, often the second or third lease year |
Metric | Gross sales, sometimes customer traffic or co-tenancy occupancy |
Notice window | Tenant often 90 days after the period; landlord recapture often 120 days |
Consequence | Early termination, sometimes with a termination fee |
Notice periods differ by party. Per Dean CRE, a tenant kick-out right is commonly exercised on 90 days written notice within 90 days after the measurement period ends, while a landlord recapture right often requires 120 days notice exercisable within 120 days of the period end. If neither party gives notice in the window, the right lapses until the next test.
Why a Kick-Out Clause Matters
A kick-out clause matters because it converts a fixed lease term into a conditional one for the party that holds the right. For a tenant, it caps downside on a location that never ramps. For a landlord, it is a tool to reclaim space from a chronic underperformer and re-tenant with a stronger operator or a higher rent.
The clause reshapes income underwriting. A buyer valuing a rent roll must flag which leases carry a kick-out right and whose it is, because a tenant-side kick-out is a hole in term and a landlord-side kick-out is optionality. Term length drives value, and a lease that can end at year three does not underwrite like one locked for ten.
The quotable point for an operator: a kick-out clause prices a store's sales performance into its lease term, so weak sales can shorten the lease, not just the percentage rent.
Example
A restaurant tenant signs a 10-year lease at $80,000 base rent with a kick-out clause: if gross sales in the third lease year fall below $1,200,000, the tenant may terminate on 90 days written notice given within 90 days after year three closes. Third-year sales come in at $1,050,000.
Step | Detail | Result |
Sales threshold | Given | $1,200,000 |
Year-three gross sales | Reported | $1,050,000 |
Shortfall | $1,200,000 minus $1,050,000 | $150,000 below the gate |
Kick-out triggered | Sales under threshold | Yes |
Notice window opens | 90 days after year three | Tenant has 90 days to notice |
Remaining term avoided | Years 4 through 10 at $80,000 | $560,000 of base rent |
Because year-three sales of $1,050,000 fell $150,000 short of the $1,200,000 gate, the tenant may terminate and walk away from seven remaining years, avoiding $560,000 in base rent obligation. The landlord recovers the space and must re-lease, while the tenant exits a location that failed to reach plan.
Variations and Edge Cases
A kick-out clause is not a single template: it can favor the tenant, the landlord, or both, and the trigger metric changes what it protects against. A tenant-side clause is an escape hatch, a landlord-side clause is a recapture tool, and a co-tenancy gate ties the exit to the health of the center rather than the store. The table below covers variants to confirm in diligence.
Variant | Treatment |
Tenant kick-out | Only the tenant may terminate on missing the sales gate |
Landlord recapture | Landlord may reclaim the space to re-tenant at a higher rent |
Mutual kick-out | Either party may terminate on a missed threshold |
Co-tenancy trigger | Exit tied to center occupancy rather than the store's own sales |
Termination fee | Exiting party pays unamortized costs such as tenant improvements |
The common mistake is testing sales in the first lease year. A new store often draws inflated opening traffic, so a first-year test can mask a location that will underperform once the novelty fades, which is why tenants push the measurement to the second or third year.
Kick-Out Clause vs Co-Tenancy Clause
A kick-out clause is often confused with a co-tenancy clause, and both can end a retail lease early, but they measure different things. A kick-out clause tests the store's own gross sales against a threshold. A co-tenancy clause tests the occupancy of other tenants in the center, triggering when a named anchor closes or occupancy falls below a floor.
The two protect against different failures. A kick-out clause protects against a store that simply does not sell enough, whatever the reason. A co-tenancy clause protects against a center that loses the traffic draw the tenant paid to be near. A tenant worried about both its own performance and the center's health may negotiate both remedies into one lease.
Frequently Asked Questions
What triggers a kick-out clause?A kick-out clause is triggered when the store's gross sales fall below a stated threshold over a defined measurement period, commonly at least 12 consecutive months in the second or third lease year. Once the shortfall is confirmed, the party holding the right may terminate the lease within a short notice window.
Who benefits from a kick-out clause?A kick-out clause can benefit the tenant, the landlord, or both, depending on drafting. A tenant-side clause lets an underperforming store exit early, while a landlord recapture right lets the landlord reclaim the space to re-tenant at a higher rent or with a stronger operator.
When is the sales threshold measured?The sales threshold is usually measured over at least 12 consecutive months to exclude seasonal swings, and tenants often push the test to the second or third lease year. This avoids testing during a new store's opening period, when novelty traffic can temporarily inflate sales above the true run rate.
Related Terms
Percentage Rent
Co-Tenancy Clause
Anchor Tenant
Tenant Retention Rate
Renewal Option