Conduct Audit Before Letting Tenant Exercise Performance Kickout Right

If a strong retail tenant has either a performance kickout right or a reduced rent right, promptly audit the tenant's gross sales records if it tells you that it will exercise its right, advises Dallas attorney T. Andrew Dow. With a performance kickout right, the tenant can terminate its lease if its gross sales fall below or don't reach a minimum sales threshold during a set time period. With a reduced rent right, the tenant can reduce its rent under similar circumstances. With either right, you're vulnerable to a deceitful tenant that exercises its right when it's not entitled to, he warns.

Assuming your lease gives you the right to audit, conducting a gross sales audit will allow you to verify whether the tenant has a valid claim that its gross sales have fallen below or haven't reached the minimum sales threshold during the set time period, Dow explains. You can blow the whistle on a tenant that isn't entitled to exercise its performance kickout right or reduced rent right.

Insider Sources

T. Andrew Dow, Esq.: Shareholder, Winstead P.C.; 5400 Renaissance Tower, 1201 Elm St., P.C., Dallas, TX 7520-2199; (214) 745-5387; adow@winstead.com