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When a cancellation clause is present in a lease contract, it allows the lessor and/or lessee to terminate the terms of the agreement should certain occur.
Such contract clauses are usually, but not exclusively, found in commercial leases.
In the event such clauses being triggered, the party that initiated the termination would usually compensate the other party in some way.
This compensation can either be a fixed amount stated in the contract itself, or a clear methodology of how the compensation would be calculated.
Some common events that trigger these types of clauses include:
- Landlord selling the whole building to another party
- Landlord wanting to combine small spaces into a large space for a big tenant
- Existing anchor tenant wanting to expand floor space
Tenants who find these clauses in commercial leases often feel that events leading to the activation of such clauses are very improbable. Yet they often more often than we think. It’s just that they are seldom public knowledge.
So when cancellation clauses are found in leases, it should be something to look into and also negotiate on.