What is a Recapture Clause?
A recapture clause is language in a contract that allows a person or entity to take back an asset under certain conditions.
How Does a Recapture Clause Work?
Let's say John Doe owns the ABC Shopping Center. He leases retail space to Company XYZ. The lease says Company XYZpay 3% of its to John Doe as rent every month for a minimum of $5,000 per month. In other words, Company XYZ has to have of at least $167,000 a month.
Company XYZ only does $100,000 a month. Because the lease has a recapture clause, John Doe can terminate the lease and take back the retail space from Company XYZ. This allows him to get a better-performing tenant in the space rather than having to suffer through the entireof the lease with a tenant that doesn't generate enough for him.