Amid a murky and often contradictory economic climate, many retailers are reconsidering how they approach one of their highest fixed costs — the lease. Rather than viewing it simply as a condition for occupancy, Spence Mehl, partner at RCS Real Estate Advisors, told GlobeSt.com that the smartest players are turning leases into strategic tools for flexibility and leverage.
“It’s a very difficult question to answer in general terms,” Mehl says. “We really have to look at the retailer — size, quality of the retailer, quality of the space there.”
That kind of case-by-case assessment, he explains, has become especially important amid a rise in bankruptcies, restructurings and shifting retail footprints.
During a Chapter 11 filing, for instance, a retailer can reorganize and either assume or reject leases, giving it significant negotiating power with landlords. “Therefore, they can renegotiate any leases that might not fit into their financial matrix,” says Mehl.
He points to recent examples such as Blink Fitness, which filed for Chapter 11 in 2024 before being acquired by PureGym for $121 million. The transaction gave PureGym control of Blink’s corporate operations and up to 67 locations across New York and New Jersey, along with the right to rebrand them. Another example is Ames Watson’s purchase of Claire’s in North America.
“We renegotiated the majority of the [Claire’s] stores,” Mehl says, “and the landlords are very supportive of this business.” In most cases, he adds, collaboration is better than the alternative — leaving landlords to backfill dozens of vacant stores.
“What you’re describing now,” he continues, “is when negotiations on leases can be forced through bankruptcy, forced through a takeover. ‘Oh, look, we have this location … if you don’t want to cooperate with us, we can go find another place to put this location, because we bought them all, but we don’t have to stay there.'"
Even outside of bankruptcy scenarios, retail leasing has grown more flexible. Mehl says many chains now favor shorter-term leases or deals that include kick-out clauses — exit rights that allow them to leave after a few years if necessary. That flexibility helps retailers shed underperforming stores or adapt their footprint as strategies evolve.
“There are many different ways that could be structured,” Mehl explains. “It’s either just a firm, one-time right to kick out, or sometimes it’s based on a sales threshold number. You don’t want to stay in a place if you’re not going to be able to make money, and the landlord doesn’t want an underperforming retailer in their space either. They want vibrant retailers who are going to attract shoppers there, and then everyone does better.”
Some leases also reflect a shift in rent composition, with a lower base rent balanced by a higher percentage of sales. This structure, Mehl notes, offers retailers downside protection if sales soften while giving landlords more upside potential when business booms.
“I have a lot of landlords who made a heck of a lot more money doing that at the end of the day than if they just did a typical triple-net lease deal,” he says. “It gave the retailer some form of downside protection.” Still, he adds, the approach carries more risk for landlords — and, as Mehl puts it, “the banks don’t like it.”
Not all property owners view that tradeoff the same way. Real estate investment trusts, he says, often prefer to maintain higher per-square-foot rents because “it helps the asset value by having the higher rent number, because their valuation is higher for helping their stock price," according to Mehl.
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