Lease Buyout Terms (before execution)
I was wondering if you all have had experience with buyout provision entering a long-term office lease. We are trying to wrap our heads around a good answer, and we have come to the conclusion that 50% of the remaining lease is a good start. 

What have you guys done or seen before?
[{"id": "dkzd8cl", "text": "Need more specifics. \n\nWhat's your idea of a buyout? Do you mean termination option? Market, Size, asset type, proposed length of term, creditworthiness of tenant, tenant's use, who's paying for tenant buildout (TI Allowance), LL type (individual, PE, institutional)??\n\nBiggest question of all: Are you trying to do this on your own?", "replies": [{"id": "dkzgkby", "text": "We are the developers on the deal. Just looking to protect ourselves, because the tenant (who is a high-quality credit) wants that in the lease. Proposing 15yr term. 24mo notice starting in year 8 (so 10 guaranteed). ", "replies": [{"id": "dkzlgi2", "text": "Typical in South Florida is the unamortized TIs, Free Rent, and Leasing Commissions. Sometimes at 8% per annum. Sometimes they throw 3 months of rent in there too. \n\nCurious - I am not on the development side - what is your end goal? Do you plan on leasing up the project then selling? I would imagine an on-going right to terminate would hurt the sale value. Would the tenant consider a one time right - effective the tenth year with notice in the eighth?", "replies": [{"id": "dkzv91f", "text": "To sell it... yes, the termination clause will suck, but it's the only way the deal gets done. ", "replies": [], "depth": 4}, {"id": "dkzvbvy", "text": "That would be the same as if you just gave them a ten year lease with a five year option...", "replies": [], "depth": 4}, {"id": "dl0thn0", "text": "This is the right answer", "replies": [], "depth": 4}], "depth": 3}, {"id": "dkzv4rd", "text": "When you go to sell the property the next buyer will underwrite the termination. You should run a rebuy analysis to see what the breakeven fee would be for a buyer such that their returns are flat. Presumably as the developer you aren't in it to hold this thing forever, so you should think about the lease the \"next guy\" will inherit and how they will think about it in their underwriting. ", "replies": [{"id": "dkzv6pc", "text": "I know I said as much to my partners... I hate it, but I don't think the deal gets done otherwise. ", "replies": [{"id": "dkzvdbn", "text": "Yea and that is OK -  totally understand you just need to get the deal done! \n\nI would think about it like this - the next guy will buy your property at stabilization. They'll underwrite to a mid-teens return, but include that tenant vacating, followed by some downtime, followed by TI/LC to release the vacancy. To figure out the fee, solve for the amount of money the tenant would have to pay as a termination fee for the buyer's IRR to be equal between the termination and the fee paid and a situation in which their was no buy out. \n\nEdit - also having a 2 year notice period is huge. How big is the building / how big is the tenant / what market is the property in? Is there a good leasing market in your area to backfill the vacancy?", "replies": [{"id": "dl01dm7", "text": "This is a great point, and makes negotiation easy because you're literally asking the tenant to pay for what it would cost you if they vacated. \n\nIsn't this \"termination fee\" amount basically equal to the NPV at termination of rent lost during down time, the proportional variable OPEX of the tenant during down time, plus Unamortized TI's, and leasing commissions? Am I missing anything in the equation?", "replies": [{"id": "dl0cxti", "text": "Nope that should work! You're just pulling their outer year cash flow forward from years 10-15 to year 8. \n\n", "replies": [], "depth": 7}], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "dl0tgk4", "text": "There is not going to be a set percentage that makes sense in all cases.\n\nMost buyouts (if the landlord will agree to one) will include all the unamortized costs of commissions (buildout contributions, and often the proportion of abatement, perhaps attorney fees). Time to re-lease the space to a new tenant may also be included.\n\nedit:words", "replies": [{"id": "dm3mf2r", "text": "That's a fair solution.", "replies": [], "depth": 2}], "depth": 1}]