Kick-Out Clause in a California Retail Lease

A kick-out clause in a California retail lease lets a tenant walk away early — usually after the third year — if the store fails to hit an agreed sales threshold, typically without the penalty of paying out the full remaining term. For a retailer signing a five- or ten-year deal in an Orange County power center or a Los Angeles street-retail corridor, it is one of the most valuable protections we negotiate, because it converts a long, fixed obligation into a calculated bet with a defined exit. We have closed kick-out provisions on everything from a 1,400-square-foot quick-service restaurant in Anaheim to a 12,000-square-foot soft-goods box in the Inland Empire, and the mechanics matter more than most tenants realize.

What is a kick-out clause in a retail lease?

A kick-out clause — sometimes called a sales kick-out, a co-tenancy kick-out, or a termination option — is a lease provision that gives one or both parties the right to end the lease early if the store's gross sales fail to reach a stated number by a stated date. The clause names a measurement period, a sales breakpoint, a notice window, and often a termination fee. If the store underperforms and the tenant elects to exercise, the lease ends on a defined date and the tenant is released from the balance of the term.

The logic is simple. A landlord wants a tenant who drives traffic and pays rent; a tenant wants to avoid being chained to a location that does not work. A kick-out aligns those interests: if the sales are not there, neither party is well served by forcing the store to limp through year seven. We see these most often on national and regional credit tenants, but a well-represented local operator can win one too.

How does a sales kick-out actually work?

The heart of the clause is the breakpoint — the gross-sales figure the store must reach. It is usually measured at the end of a defined window, most commonly the trailing twelve months ending on the last day of the 36th lease month, though we negotiate measurement points anywhere from month 24 to month 48 depending on the concept's ramp time. If reported sales for that period fall below the breakpoint, a termination window opens, and the tenant generally has 60 to 120 days to deliver written notice. The lease then terminates a set number of months later — often six to twelve — giving both sides time to plan.

How the breakpoint is set is where deals are won or lost. A breakpoint expressed as a flat dollar figure (say, $650 per square foot in annual gross sales) is clean but blunt. A breakpoint tied to the same gross-sales definition used for percentage rent in a California retail lease is more elegant, because the parties are already tracking that number and the audit mechanics are already in the document. We push to use one consistent sales definition throughout the lease so a tenant is never measured against a moving target.

What is a fair kick-out termination fee?

Most landlords will not grant a clean exit for free. The typical price of a kick-out is a termination fee that reimburses the landlord for unamortized costs — the leasing commission, free rent, and the tenant improvement allowance the landlord fronted. We routinely see fees structured as the unamortized balance of those concessions, amortized straight-line over the original term at a stated interest rate of roughly 8 to 10 percent. On a deal with a $50-per-square-foot TI package, that fee can be meaningful in year three and small by year five, which is exactly why the amortization schedule deserves close attention.

What we resist is a fee that doubles as a penalty — for example, several months of additional rent stacked on top of the unamortized concessions. The clause should make the landlord whole, not punish a tenant for using a right both parties agreed to. In Southern California's competitive leasing market, particularly in the Inland Empire and outlying Orange County submarkets where landlords are fighting for credit tenants, a clean unamortized-cost fee is achievable.

Kick-out clause vs co-tenancy: what is the difference?

Tenants frequently confuse the two, and the distinction is important. A kick-out turns on the tenant's own sales performance. A co-tenancy remedy turns on the center's occupancy — whether the anchor stays open and whether the shopping center maintains a stated occupancy percentage. A store can be hitting its breakpoint comfortably and still trigger a co-tenancy remedy because the anchor went dark, and vice versa. The strongest leases we negotiate carry both, because they protect against two different failure modes. If the center is your concern, read our detailed breakdown of the co-tenancy clause in a California retail lease and pair it with a sales kick-out rather than choosing one over the other.

Who can win a kick-out clause in Southern California?

Negotiating leverage drives everything. Anchor and junior-anchor tenants almost always command a kick-out, and so do credit-rated regional chains taking space in a center that needs them. For a single-unit local operator, the right depends on the asset: in a fully leased Irvine or Costa Mesa center with a waiting list, a landlord has little reason to grant one; in a Riverside, Moreno Valley, or Fontana center carrying vacancy, the same landlord may concede it to close the deal. We read the rent roll and the submarket before we ask, because a kick-out request that signals weakness in the wrong building can cost a tenant on rent or exclusive use protection elsewhere in the lease.

Concept maturity matters too. A first-to-market restaurant concept with no comparable sales history is a harder case than an established retailer expanding its third Orange County location. When the sales history is thin, we sometimes trade a slightly higher breakpoint or a later measurement date for the right itself — the option to exit is usually worth more than a few points on the threshold.

Common drafting traps we watch for

The fine print decides whether a kick-out is real or decorative. We watch for breakpoints quietly indexed to escalate each year, narrow notice windows that are easy to miss, and gross-sales definitions that exclude online and curbside orders fulfilled from the store — an increasingly large slice of revenue that, if omitted, can artificially depress reported sales and trip a breakpoint the store actually beat. We also confirm the clause survives a quiet assignment and ties cleanly to the lease's reporting and audit rights, so the sales figure that controls the exit is the same figure the landlord can verify. According to the International Council of Shopping Centers, sales-based lease provisions remain central to how performance and occupancy are negotiated across the U.S. retail sector, which is why getting the definitions right is not a formality.

One more trap: a one-sided kick-out that the landlord can also exercise. A landlord termination right lets an owner recapture a successful store to re-tenant at higher rent or backfill a redevelopment. If the lease must include a landlord-side right, we narrow its triggers, lengthen its notice, and pair it with relocation and improvement-reimbursement protections so a thriving tenant cannot be pushed out of a location it built.

Talk to us before you sign

A kick-out clause is only as strong as its breakpoint, its measurement period, its fee, and its sales definition — and those four levers are negotiated, not standard. We have structured these provisions across Orange County, Los Angeles, and the Inland Empire for tenants ranging from single-unit operators to national chains, and we know which landlords concede them and on what terms. If you are evaluating a new lease, a renewal, or an expansion and want a termination right that genuinely protects your downside, call us at 949-796-7275 or email leasing@digitalre.com, and we will help you build the exit before you ever need it.