The Sales Volume Termination Clause: Protecting the Landlord's Interests

As the popularity of lifestyle center developments continues to grow, the national and regional small-shop tenants forming the leasing backbone of these projects persist in their efforts to negotiate lease rights traditionally granted only to anchor tenants just a few years ago. One such right is the sales volume termination right. Generally, the sales volume termination clause allows a tenant to terminate its lease in the event sales from the tenant's premises do not exceed a predetermined sales volume during a specific period of time. The primary purpose of this clause is to provide a tenant with an exit strategy for an underperforming store. Although the cause of such underperformance may be attributable to a struggling shopping center, alternate causes include poor store management and misguided merchandising decisions, among others. Certainly, landlords would prefer to avoid granting tenants any termination rights; however, the relative bargaining position of the parties may require that the landlord concede to the tenant's insistence for a sales volume termination right. If a landlord finds itself providing a sales volume termination right, then the sales volume termination clause should be structured to address the tenant's specific concerns rather than serve as an open-ended termination right, and it should include a number of landlord protections.