This is Not a Prison Break, Why do I Need a “Recapture” Clause?


Are you the type whom, when buying a new phone or device, tears open the box and tries to get it working without paying any attention to the instruction manual and warranty information?  Leasing office space can be the same way.  

You just want to secure a space so you can plan for your new offices without diving into the minutia of a commercial lease. Office leases can be especially difficult to understand when the language belabors unplanned and/or unlikely contingencies.

One of the best examples of unnecessarily bloated lease language involves one of the more misperceived clauses in a commercial lease's sublease and assignment clause: landlord recapture.  In reality it's a contingency that rarely happens.

Landlord recapture language allows the landlord the option, when approving a sublease, to become the subtenant and "take back" the space for its own interest and/or use.  Right away it gets confusing because the mechanism for taking the space is not a "capturing" but a subleasing by the landlord, who thereby becomes the subtenant and subsequently sub-subleases the space to another party.

Why would a landlord do this?  Let's look at it from their point of view: it's more about control than anything else.  Most landlords want every option possible to have control over who occupies their building.  The only typical occasions for landlord recapture are a) to satisfy an eAxisting (usually large) tenant in the building that is expanding, or b) if there is some kind of market arbitrage between the sublease rent and the market rent.  Of these two scenarios, the first is more likely.

Here's why: landlords like strong credits and monthly cash flow.  If a sublessor is credit-worthy, the landlord would prefer to have the sublessor remain liable for the lease and have a secondary credit (the sublessee) as a backstop to the original credit.  Tenants often mistakenly assume that landlords want to get space back to market themselves, particularly if a building is fully-leased.  In fact, the opposite is true, if a building has 100% occupancy, there is nothing for the landlord to do except to sit back and collect checks.  Why change that?  In addition to credit security, Landlords also like diversity of risk and approving a sublease can provide both.

In any case, like sublease approval rights, recapture rights should not require a period of more than 15-30 days to exercize.  If you are negotiating this clause in a lease, definitely get a fixed timeframe and shoot for the quickest possible approval period available.