What is an exit clause and what should it contain?

An exit clause is generally found only in a commercial lease.  A commercial lease involves business properties, typically located in areas such as office buildings, shopping centers, large malls or strip mall locations.

What is an Exit Clause? 

An exit clause is a written provision in a commercial lease which permits the lessee or lessor of the commercial property to legally, and without penalty, to get out of a lease, due to certain circumstances agreed upon by the parties.  Usually, these circumstances are due to a change in market conditions causing a negative disruption in one’s business. 

Contents of an Exit Clause

An exit clause can contain various provisions which are agreed upon by the parties to the contract.  However, in most instances, the main components of an exit clause are as follows: 

• how to provide notice of your intent to “exit” the lease to the other party
• the amount of time required to legally “exit” the lease when exercising the exit clause provision
• the responsibilities of each party when exercising the exit clause provision
• the condition of the property upon one’s “exit” from the property
• any monies owed to the other party upon one’s “exit” from the property
• the circumstances when one is in breach of the “exit clause” 

Getting Legal Help

When one is contemplating entering into a commercial lease with an exit clause, one should consider consulting with an experienced commercial real estate attorney.  Commercial leases contain complex provisions and therefore should be reviewed by an experienced real estate attorney to ensure that one’s rights are adequately protected.