CRE glossary
Mid-term break right
A mid-term break right (also called early termination option) is the tenant's contractual right to terminate the lease early at a defined milestone date. Mid-term breaks typically require advance notice (9–12 months) and a termination payment that compensates the landlord for unamortized TI, free rent, and broker commissions plus 6–12 months of rent.
Mid-term breaks are valuable to tenants with uncertain growth trajectories, startups, expanding companies, businesses in volatile industries. The right to walk at year 5 of a 10-year lease provides optionality at the cost of a defined termination fee. Mid-term breaks are landlord-unfriendly because they deliver vacancy and are heavily contested.
Termination fees are calculated as: unamortized TI allowance + unamortized free rent + unamortized broker commissions + a 'penalty' (typically 3–12 months of base rent). For a tenant with $100/SF TI on a 10-year deal who terminates at year 5, the unamortized TI alone is $50/SF, $625k on a 12,500 SF deal. Total termination fee can run $1M+.
Not all mid-term breaks are equal. Some require 12 months of notice (limiting flexibility); some require 6 months. Some kick in at year 3, year 5, or year 7. Some include a 'no-fault' break (tenant can walk for any reason); some are conditional on specific events (downsize, acquisition, building defect). Negotiate the structure that matches the tenant's actual risk profile.
Example
- 10-year lease, mid-term break at year 5
- TI allowance
- $100/SF × 12,500 = $1.25M
- Unamortized TI at year 5
- $625k
- Free rent value (6 months × $58/SF × 12,500)
- $362k
- Termination penalty (6 months base rent)
- $362k
- Total termination fee
- $1.35M
Broker perspective
Mid-term breaks cost the tenant in two places: the explicit termination fee, and the higher base rent the landlord charges for granting the option. Calculate the math: how much extra is the tenant paying per year for the break right vs. how likely is the tenant to actually exercise. Often the math doesn't work, but for early-stage companies it absolutely does.
Frequently asked
People also ask
How much extra does a mid-term break cost?
Landlords typically charge 5–15% premium on base rent for granting the option. Plus the termination fee on exercise.
When can I exercise a mid-term break?
At the milestone date specified in the lease, with required advance notice (typically 9–12 months).
Can I negotiate the termination fee structure?
Yes, the components (unamortized TI, free rent, commissions, penalty) are all negotiable. Reduce the penalty months to lower exposure.
Is mid-term break the same as a 'fix and walk'?
Different. Mid-term break is a no-fault termination right. Fix-and-walk is conditional on landlord failing to fix a defined building issue.
Related terms
Letter of intent (LOI)
A non-binding outline of the major business terms, rent, term, TI, options, that becomes the basis for the binding lease.
Tenant improvements (TI / TIA)
Money the landlord contributes toward customizing the space for the tenant, usually expressed as $/SF.
Renewal option
Tenant's contractual right to extend the lease at predefined terms, usually exercised 9–12 months before expiration.
Default and cure period
When a tenant breaches the lease and the time the landlord must give them to fix it before pursuing remedies.
See mid-term break right extracted from a real lease.
Drop a 60-page lease, get a 38-field abstract in 90 seconds, every value cited back to the source page.