Carve Out Right to Recapture Tenant’s Space After “Going Dark”

Commercial tenants typically want the right to “go dark”—that is, stop operating while continuing to pay rent—if their businesses aren’t generating enough revenue. “Going dark” can save tenants the cost of stocking and staffing the space they rent. But if you give a tenant the right to go dark, you may want to carve out a recapture right for yourself—allowing you to take back the space and replace the tenant.

While an owner’s right to recapture is a reasonable tradeoff for a tenant’s right to go dark, a standard recapture clause in a lease form could be too narrow to protect you, allowing you only a short time to make decisions. You can take steps to negotiate a broad recapture right that gives you sufficient leeway when exercising this option.

To do this, set a favorable “go dark period” and “recapture date.” Your recapture right can be triggered if the tenant notifies you with a “go dark notice” that it intends to go dark, or if it ceases operations in the space for a set period of time that you’ve specified in the lease—the “go dark period”—without sending you any notice. You can choose to exercise your recapture right when you get the tenant’s go dark notice or when the go dark period ends. But first you must send the tenant a “recapture notice” saying that you intend to recapture its space. The lease will end on the “recapture date”—a set number of days after the tenant receives the recapture notice.

You don’t want your recapture right to be triggered too soon—for example, when the tenant closes for a couple days to take its semiannual inventory. Nor do you want the tenant to be able to cease operations for such a long period of time that it affects the overall business of the center—such as a year. A struggling tenant that has the right to go dark for a long period of time may waste time or never intend to reopen. Here’s how you can set the “go dark period” and the “recapture date” so they are favorable to you:

• Set baseline for commencement of business operations;
• Limit operations hiatus;
• Set limits on permitted closings;
• State that store is deemed to have “ceased operating" if even a portion of space is unused at any time during the term;
• Give yourself unlimited time to exercise right;
• Set recapture date that fits your estimated timeline for finding a new tenant for the space; and
• Allow tenant short nullification period to change its mind about going dark.

For more tips on how to negotiate your recapture right, and model language that shows you how to draft it in your leases, see “Negotiate Broad Right to Recapture Tenant’s Dark Space,” available to subscribers here.