How Do I Negotiate a Kick-Out Clause for Low Sales?

Why a kick-out clause is the tenant's most valuable protection

A bad retail location can bleed you for years, and a kick-out clause is the single term that caps that downside. Without one, you are trapped paying base rent plus triple-net (NNN) charges on a dying store until the term expires or you scramble to find an assignee — and assignees are scarce for a site that already failed. With a kick-out, you get a clean, pre-negotiated exit if the location underperforms: no litigation, no buyout fight, no personal-guaranty nightmare dragging on for years while your other stores subsidize the loser.

Landlords resist the clause because it shifts location risk back onto them, which is precisely why it is worth fighting for. When a landlord leases you space, they are implicitly promising that the center, the co-tenants, and the traffic they described will actually materialize. A kick-out clause forces them to share that bet. If the site genuinely drives the foot traffic they promised, your sales clear the breakpoint and the clause never fires — it costs the landlord nothing. It only bites when the store fails, which is the exact scenario you need protection against.

Think of the clause as converting a ten-year obligation into a paid trial run. You commit real capital and effort, but you buy the right to walk if the numbers prove the location does not work. For any first location, any unproven concept, or any second-generation space in a center you do not fully trust, this is the term you spend your negotiating capital on before almost any other.

The breakpoint number is everything

The breakpoint is the sales threshold that triggers your right to leave, and getting the number right matters more than any other single lever. Set it at the gross-sales level where the store stops being viable — not at a fantasy figure the landlord prefers, and not at a number so low you would have to be nearly bankrupt to qualify.

There are two common ways to express it. The first is a dollars-per-square-foot figure: you and the landlord agree that if annual sales fall below, say, a specified figure per rentable square foot, the right activates. The second is a multiple of base rent — for example, the right triggers if gross sales come in below roughly 8-10x your annual base rent. That multiple reflects the old retail rule of thumb that occupancy cost should run somewhere around 8-12% of sales; below that ratio, rent is eating too much of your revenue for the store to survive.

Before you negotiate the number, run your real break-even. Add up base rent, NNN (taxes, insurance, common-area maintenance), payroll, cost of goods, and your minimum acceptable margin. The sales figure that just covers those costs is your floor. You want the breakpoint set at or slightly above that floor so the clause fires while the wound is still small — not after you have burned through your reserves proving what the P&L already told you.

Landlords will push the breakpoint down, because a lower threshold means the clause almost never triggers and your termination right becomes decorative. Anchor every counter-offer to your documented break-even and be ready to show conservative financials. A breakpoint you cannot realistically miss until you are already ruined is worth nothing.

Structuring the measuring period: how long is long enough

The measuring period is the second-most critical lever, and landlords will push for twelve months or less — arguing that if you cannot prove the concept quickly, you do not belong there. But twelve months is rarely enough to judge a location's true potential. New businesses often take six to nine months just to reach steady-state operations, and first-year seasonality distorts the numbers. Measure too early and a slow ramp reads as failure; measure too late and you have already paid years of losses.

Push for a 24-month measuring period as your opening position. Two full years give you two complete seasonal cycles and cover the typical 12-18 month ramp most retail concepts need. If the landlord resists, compromise at 18 months with an optional six-month extension when sales are within roughly 10% of the breakpoint. Whatever the window, insist the measurement be a trailing-12-month figure so one bad month cannot decide it and a strong holiday quarter cannot mask an otherwise weak year. Useful language: "Gross sales shall be measured over the trailing twelve consecutive months immediately preceding the end of the 24th full calendar month of the lease term." That phrasing stops the landlord from cherry-picking a slow three-month stretch.

For restaurants and heavily seasonal businesses, consider a two-year rolling average instead. It smooths anomalies like a construction disruption, a bad-weather quarter, or a one-time event. Sample language: "If average monthly gross sales over the most recent 24 consecutive months fall below the breakpoint, Tenant may exercise the kick-out right." Also decide whether the right is a one-time window or a repeating one. A single 30-day exercise window that vanishes forever punishes a near-miss; negotiate a rolling or repeating right so a marginal first measurement does not lock you into the full term.

Defining "gross sales" so the clause is actually usable

The definition of "gross sales" decides whether you can ever trigger the clause or get trapped arguing about it. Landlords want the broadest possible definition — every online order picked up in store, gift-card redemptions, catering, delivery revenue — because a bigger sales number keeps you above the breakpoint on paper even when the store is failing. You want to exclude items that inflate the figure without reflecting the store's real profitability.

Start with the standard exclusions: returns, refunds, and chargebacks come out first. Then push to exclude sales tax, employee discounts, and any sales to affiliates at cost. Restaurants should exclude gratuities and service charges, which pass straight through to staff. Retailers should exclude gift-card sales until they are actually redeemed — otherwise you can "hit" the breakpoint on unredeemed cards while still owing the future liability to fulfill them.

The most contested exclusion is online sales attributed to the store. If you run a national e-commerce operation, the landlord will try to count every online order shipped to an address within some radius of the center. Counter with: only sales where the customer physically enters the premises and completes the transaction on-site. If they will not accept that, cap online attribution at roughly 10% of total gross sales so digital orders that reflect no foot traffic cannot single-handedly keep you above the breakpoint.

Finally, memorialize the whole definition as a schedule to the lease that both parties initial, so the landlord cannot later claim "gross sales" meant something broader. Example: "Gross Sales means the total dollar amount of all sales of goods and services made at or from the Premises, excluding (a) returns and refunds, (b) sales tax, (c) employee discounts, (d) gift-card sales until redeemed, and (e) online sales where the customer does not enter the Premises." Pin it down in writing and the fight over whether the clause even applies disappears.

Negotiating the termination fee: zero versus a sliding scale

The termination fee is where landlords make their last stand. Their argument is straightforward: if you can leave for free, they have no way to recoup the tenant-improvement (TI) money and leasing commissions they sank into your deal. Your counter is equally clean — if sales are below the breakpoint, the location is not working for either party, and forcing you to stay with a penalty just delays the inevitable while blocking them from re-leasing to someone who can succeed.

Open by asking for a zero termination fee; that is the strongest tenants' outcome and worth stating plainly. If the landlord refuses, propose a sliding scale keyed to how far below the breakpoint you land. For example: sales 0-10% below breakpoint, fee equals three months' rent; 11-20% below, two months' rent; more than 21% below, zero fee. That structure penalizes you only when the store was close to viable and rewards an honest early exit when it clearly failed.

A common middle ground is a fee equal to the unamortized TI and unamortized leasing commission, with a hard cap. Say the landlord spent $100,000 on TI over a ten-year lease; after two years the unamortized balance is roughly $80,000, but capped at six months' rent — perhaps $60,000 — you pay the lower figure. Crucially, make those costs amortize down over time so your exposure shrinks the longer you stay. And reject any "fee" that secretly equals accelerated future rent. A clause that makes you pay all remaining rent is not an exit; it is a buyout wearing a kick-out costume.

Two more asks preserve real money. First, negotiate a full waiver of the fee if you sign a new lease with the same landlord at a different location within six months — that gives them a path to keep you and gives you a graceful relocation. Second, make any fee payable over six months rather than as a lump sum, so the exit does not drain the cash you need to redeploy the business.

Notice period, co-tenancy backup, and the traps to watch

Two more levers round out a strong clause. The notice period is how far ahead you must warn the landlord before you leave; shorter is better for you because every extra month is another month of losses you absorb. Aim for three to six months. Landlords want twelve so they can line up a replacement tenant — trade other points to keep your notice short rather than conceding it cheaply.

Co-tenancy linkage protects you against a failure that is not your fault. If an anchor tenant — the big-box store that draws the center's traffic — goes dark, your sales can collapse through no error of your own. Tie a remedy to that event: either a parallel kick-out right that fires immediately, or a rent reduction to a percentage-rent-only basis (you pay only a small share of actual sales) until the anchor is replaced. That way an anchor closure does not leave you paying full rent into a suddenly empty center while you wait out the measuring period.

Several traps quietly gut the clause even when it looks solid. A breakpoint set impossibly low means you would have to be near-bankrupt to qualify — anchor it to your real viability number. Measuring too late (a year-five test on a ten-year lease) is nearly worthless because the losses have already compounded. A fee disguised as rent acceleration converts your exit into a buyout — cap it to unrecovered costs that amortize down. A vague sales definition that sweeps in revenue you do not truly collect keeps you above the breakpoint forever. And watch for a landlord recapture right buried nearby: recapture lets *them* terminate and seize your built-out space cheaply, so keep the kick-out firmly tenant-controlled.

A quick worked example

Put the levers together. Suppose your base rent runs $120,000 a year and your break-even needs roughly $1.2 million in gross sales. You negotiate a breakpoint of $1.0 million in trailing-12-month sales, measured at month 30, with four months' notice and a fee limited to the unamortized TI balance. Sales come in at $850,000 — clearly below the threshold. You give notice, pay only the small unrecovered TI balance, and walk, instead of grinding through seven more years of a money-losing store while the personal guaranty hangs over you. That one clause is the difference between a manageable setback and a business-ending lease, and it is why the kick-out is the term worth spending your leverage on.

Related questions

What is a fair sales breakpoint to propose?

Base it on your conservative break-even — total occupancy cost plus payroll, cost of goods, and a minimum margin — often set where occupancy runs about 8-12% of sales. Avoid round numbers; bring documented financials so the landlord accepts a viability-based figure rather than an arbitrary one.

How is a kick-out clause different from a co-tenancy clause?

A kick-out fires on *your* sales falling below a breakpoint. A co-tenancy clause fires when the landlord's promised anchors or occupancy levels fail. Strong retail leases carry both, and ideally link them so an anchor going dark also unlocks your exit.

Can I negotiate a cure period before the clause triggers?

Sometimes, though a cure period cuts the other way — it lets the *landlord* keep you longer. More useful is requiring sales to miss the breakpoint over a trailing-12-month or two-consecutive-period basis, so a single soft quarter never forces or blocks the decision on its own.

Will the landlord require sales verification?

Almost always. Expect monthly or quarterly sales reports, often certified by your accountant. That is reasonable — just make sure the reported figure uses the negotiated "gross sales" definition, and that the trigger is measured over your agreed trailing window rather than any single reporting period the landlord selects.

Does a kick-out clause hurt my chances of signing the lease?

It raises landlord resistance because it shifts location risk, but it rarely kills a deal outright. Landlords grant it more readily to strong-credit tenants, for second-generation space, or in exchange for a slightly higher rent or a modest exit fee.

FAQ

What exactly is a kick-out clause for low sales? It is a lease provision letting you terminate if the store's gross sales fall below a pre-agreed threshold over a set measuring period. The threshold is usually expressed as gross sales per square foot or as a multiple of base rent, and the right typically activates at a defined date rather than continuously.

How do I determine a realistic sales threshold to propose? Base it on your projected break-even plus a small cushion — often set where occupancy costs stop being sustainable relative to revenue. Use your business plan's conservative forecast rather than a round number, and be ready to show the landlord supporting financials that justify why that figure marks non-viability.

What measuring period should I negotiate for? Open at 24 months so you capture two seasonal cycles and a normal ramp, and insist on a trailing-12-month measurement. If the landlord pushes back, compromise near 18 months with an extension when you are within about 10% of the breakpoint. Avoid a first-year-only test that judges you during ramp-up.

Will the landlord require a sales audit or verification? Usually yes — expect monthly or quarterly reports, often certified by your accountant. To avoid a temporary dip triggering disputes, negotiate that the clause activates only when sales fall below the threshold across your agreed trailing window or two consecutive periods, using the exact "gross sales" definition written into the lease.

What happens if I exercise the clause — do I owe anything? It depends on what you negotiated. Best case is zero. A common compromise is a fee limited to unamortized tenant improvements and leasing commissions, capped and amortizing down over time. Reject any fee equal to accelerated remaining rent, and try to make whatever fee applies payable over several months.

Can an anchor tenant closing trigger my exit? Only if you negotiated co-tenancy linkage. Tie an anchor going dark to a remedy — either a parallel kick-out right or a drop to percentage-rent-only until the anchor is replaced. Without that language, an anchor closure can crater your traffic while you still owe full rent through the measuring period.

Sources

• https://www.cbre.com/insights
• https://www.jll.com/en-us/services/tenant-representation
• https://www.cushmanwakefield.com/en/united-states/insights
• https://www.naiop.org/research-and-publications/
• https://www.boma.org/
• https://www.irem.org/
• https://www.icsc.com/
• https://www.nolo.com/legal-encyclopedia/commercial-leases

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