A recapture clause is defined as a lease provision that allows the landlord to terminate a lease and retain possession of a property. This type of clause is very common in commercial real estate deals. The details of the clause are negotiated by the property owner and the lessee, and once decided on are included in the lease agreement. The most important detail of a recapture clause is the trigger, which is the event that allows a landlord to take the property back.
A common trigger for a recapture clause is a tenant wanting to sublet their space, and the recapture clause is often closely related to an assignment clause. If a tenant business starts performing poorly, they will want to sublet their property to another business instead of defaulting on their lease. However, the landlord may prefer to initiate a new lease for the new company, and so will call upon the recapture clause in the lease. For this reason, recapture clause language is often vague to allow the landlord flexibility if this situation arises.
Another common trigger is the level of revenue a tenant generates. This one is a little more obvious, because a landlord does not want a tenant to default on the lease or stop paying rent, so they want the option to get out of the agreement before things get that bad. This is most common in percentage leases, in which a tenant agrees to a base rent plus an additional percentage of revenue to be paid to the landlord. If the revenue dips below a certain level and there is a recapture clause in place, the landlord can take the property back and can bring in another tenant in hopes of bringing revenue back up. Really, a recapture clause exists to help the landlord and it maintains the landlord’s bottom line in terms of revenue.