Glossary / Lease terms and deal stages
Also known as: Termination option, early termination option
A lease provision that lets a party, usually the tenant, end the lease before its scheduled expiration, typically by giving advance notice and paying a termination fee set out in the lease.
An early termination clause gives one party, usually the tenant, the right to end a lease before the scheduled expiration date. Occupier describes it as a clause that lets tenants "end the lease early by paying a predetermined fee." The lease sets when the right can be used, how much notice is required, and how the fee is calculated.
According to Stoel Rives, the early termination fee typically reflects the remaining term, the landlord's unamortized tenant improvement costs, broker commissions paid at the start of the lease, and rent concessions already granted. A University of Texas System conference presentation lists the same core components: tenant improvement costs, rent abatement, leasing commissions, and legal expenses. This is general information, not legal advice. Rules vary by state and by contract, so have the actual lease language reviewed.
A termination option means the full lease term is not guaranteed. If your fee is calculated on rent over the full term, whether a later termination changes what you are owed depends on your Commission agreement. Some agreements say nothing about it; others address it directly. Read both documents before the lease is signed, not after the tenant gives notice.
Leasing commissions are one of the costs a termination fee is designed to give back to the landlord, according to Stoel Rives. That puts the commission you were paid inside the termination math, so keep clean records of what was paid and when. On the tenant rep side, an exercised option can also mean your client needs new space, which may be a new assignment.
When a lease has a termination option, check what your commission agreement says about an exercised option before you sign it.
For example, on a hypothetical 10-year lease of 10,000 rentable square feet at $30 per square foot per year with no escalations, total base rent is $3,000,000. If a tenant terminates after year 5, rent actually collected is $1,500,000. If a hypothetical commission agreement paid 4% of total base rent, the fee would be $120,000 on the full term and $60,000 on five years. Which number applies, and whether any amount is refunded, depends entirely on the agreement.
