Why Smart Companies Design Their Lease Exit on Day One

By Chris Rohrer, Broker & Pete Kostroski, Broker | Rokos Advisors

At Rokos Advisors, we spend much of our time advising business owners, CFOs, and CEOs across the Twin Cities who are making long-term real estate decisions in a market defined by change. One theme comes up repeatedly: companies are being asked to commit to lease terms that often outlast their ability to confidently predict how their business will operate five, seven, or ten years from now.

That disconnect is why the smartest companies think about their lease exit strategy before the lease is ever signed. Not because they expect to leave early, but because experience has shown that business plans change far more often than leases do.

Growth expectations shift. Leadership teams evolve. Capital priorities change. Hybrid work models continue to be refined. Yet leases are still commonly structured as if certainty is guaranteed for the better part of a decade.

When Lease Terms Outlive Business Certainty

In today’s Twin Cities market, many tenants have meaningful leverage when negotiating new leases, particularly outside of the newest and most highly sought-after buildings. At the same time, landlords are still underwriting deals based on long-term assumptions tied to financing, capital recovery, and lender requirements.

Navigating that balance requires clarity — not just about rental rates and concessions, but about how flexibility actually works in practice. Too often, companies focus heavily on move-in economics while giving little thought to what happens if the space no longer aligns with the business several years down the road. By the time that realization occurs, leverage has often shifted, and options become more limited.

Why Flexibility Is Commonly Misunderstood

Lease flexibility is frequently misunderstood as the ability to exit a lease at any time for a predetermined price. In reality, truly open-ended buyout clauses are uncommon in most office and industrial leases.

These provisions often conflict with how buildings are financed and introduce uncertainty that landlords and lenders are unwilling to accept. Chasing unlimited flexibility can consume negotiating capital without producing a realistic outcome. Understanding this upfront allows companies to focus on solutions that are both achievable and effective.

 What Actually Works: Defined Termination Options

What is common — and far more valuable — is a clearly defined termination option.

This structure gives a company the right to exit the lease at a specific point or points in time, typically after the landlord has recovered its upfront investment in tenant improvements and leasing costs. The cost of that exit is established in advance, creating clarity rather than surprise.

Instead of paying for flexibility that may never be used, termination options are tied to real business milestones: a strategic review period, a potential expansion or contraction phase, or a broader organizational change. Flexibility is most valuable when it is available at the moments that matter, not indefinitely.

A Twin Cities Perspective

We recently advised a Twin Cities-based company facing exactly this situation. The business was performing well, but leadership recognized that their space needs could change meaningfully within the next several years due to growth patterns and evolving work strategies.

Rather than pursuing unlimited flexibility, we focused on negotiating a single, well-timed termination option aligned with a realistic decision point in the company’s business plan. The result was a lease that worked economically on day one while still protecting the company if circumstances changed.

Why Landlord Often Support This Approach

From a landlord’s perspective, defined termination rights preserve the ability to underwrite the deal, satisfy lender requirements, and plan for future leasing. When landlords have that clarity, they are often more willing to be aggressive on other terms, including rental rates, improvement allowances, concessions, and renewal flexibility.

In many cases, thoughtfully structured flexibility actually improves the overall economics of the lease for both sides. More expansive buyout rights do exist, typically for very large or strategic tenants, but even then they are treated as carefully modeled financial options rather than simple escape clauses.

Starting With the End in Mind

The broader point is this: lease flexibility is not about avoiding commitment. It is about managing risk responsibly.

A well-structured lease does not assume today’s business model will remain unchanged for the next decade. It acknowledges uncertainty and creates a rational, defensible path forward if conditions change. Designing the exit strategy on day one leads to better decisions across the board. It forces leadership teams to think beyond move-in day and consider how the space supports the business over time. It also reduces the likelihood of difficult renegotiations later, when leverage is limited and options are fewer.

In a market like the Twin Cities, starting with the end in mind is not pessimism—it is simply good management.

Thinking through a lease decision? Connect with Rokos Advisors. We work with business owners and leaders to structure leases that support both near-term operations and long-term flexibility.

Rokos Advisors is an award-winning Minneapolis - St. Paul based commercial real estate/tenant representation firm specializing in helping businesses find the perfect office or industrial space for their company.