Why Early Termination Clauses Can Kill a Lease Deal
Understanding when an early termination clause makes sense—and how to negotiate one successfully.
By George Pino, CEO of Commercial Brokers International
When working with a new tenant client—especially a startup—it's common for the tenant to ask, or even insist, on receiving certain lease terms that can ultimately become deal killers.
One of the most common requests I see is for an early termination clause.
What many prospective tenants don't realize is that simply asking for this provision can immediately raise a red flag for the landlord.
Why Landlords See Early Termination Clauses as a Red Flag
When a tenant is leasing space in a high-demand market, most landlords are looking for a three-year or five-year lease term.
It's not uncommon for a broker to ask the landlord to include an early termination clause allowing the tenant to end the lease after three years.
As a landlord, my first thought is:
"You're asking me to believe in your business enough to offer you a lease, but you don't believe in it enough to commit to the full lease term. Why should I?"
Beyond perception, lease rates and concessions are often tied directly to the length of the lease. Longer lease terms typically receive greater concessions, and landlords pay the full brokerage commission upfront. If a tenant terminates the lease early, those investments may never be recovered.
When an Early Termination Clause Makes Sense
That doesn't mean early termination clauses should never be negotiated.
In fact, I've successfully negotiated them when:
The reason for the early termination is tied to a legitimate business need.
The agreement includes a fair solution that protects the landlord financially.
The key is demonstrating that the request isn't based on uncertainty about the business—it's based on a unique business circumstance.
A Real-World Example
One of the most successful early termination clauses I negotiated involved a well-known animation film producer.
The company expected its project to take between three and four years to complete.
I explained to the landlord that the tenant wasn't concerned about the success of its business. Rather, the office space was only needed for the duration of the film's production.
If production finished in three years, there would be no reason to continue leasing the space for a fourth year.
Once the landlord understood the reasoning behind the request, they became much more receptive to discussing an early termination option.
Finding a Win-Win Solution
After extensive negotiations, we developed a structure that protected both parties.
Rather than giving the tenant a single opportunity to terminate on the third anniversary of the lease, we negotiated the right for the tenant to terminate at any point after the third year.
This gave the tenant flexibility if production extended beyond three years, while preventing them from being locked into a full four-year lease unnecessarily.
Protecting the Landlord
To make the agreement work, the landlord also needed protection.
We agreed that the early termination right would only become effective if the tenant paid a fee equal to one-half of the remaining lease payments at the time they exercised the termination option.
This reimbursement helped offset:
Leasing concessions
Brokerage commissions
Vacancy risk
Future leasing costs
The result was a structure that fairly balanced the interests of both parties and ultimately allowed the lease negotiations to move forward successfully.
The Takeaway
When requesting lease provisions that may concern a landlord, it's important to have a strong business reason behind the request.
Simply asking for an early termination clause "just in case the business doesn't work out" is unlikely to be well received.
Instead, focus on:
Clearly explaining the business purpose behind the request.
Structuring the clause in a way that fairly protects both the tenant and the landlord.
Negotiating a solution that reflects current market conditions and creates a true win-win outcome.
Approached thoughtfully, an early termination clause can become a valuable negotiating tool instead of a deal breaker.
Need Help Negotiating Your Next Lease?
If you're considering leasing commercial space but have concerns about the lease terms, we're here to help.
At Commercial Brokers International, we work with tenants to structure lease negotiations that balance flexibility with market realities—helping both parties reach agreements that make sense.
Learn more and connect with an experienced commercial real estate advisor today.