The company walks away by paying the early termination fee. We assume that type of clause is often negotiated into the contract because the company wants flexibility to break the lease to respond to changing business conditions.
Re:$3 Trillion in Forgotten Debt
by firebird84 on Friday November 17, 2017 @09:44PM
(#15727515)
I don't know about corporate leases, but early termination fees on a lease AREN'T a given. Some states have next to no regulation on it, and landlords are free to write terms without one. The early termination fee there is simply "the remaining rent", which is what is reflected here.
>but early termination fees on a lease AREN'T a given.
Correct, and that's why I specifically wrote "often negotiated" and not "always included". I wasn't writing in absolutes.
>The early termination fee there is simply "the remaining rent", which is what is reflected _here_.
(Not sure what previous comment the "here" in "reflected here" is referring to.)
I was talking about leases where the negotiated termination fee is much less than the remaining rent. It depends on market forces. (If the office landlord has lots of vacancies and is desperate for tenants, favorable termination fees will be more common.)
If not putting leases on balance sheets understates actual liabilities, then likewise, adding entire lease terms with optionality overstates it.
A lease is really closer to a set of futures contracts than a call option. You can't just walk away from a lease if you don't want it anymore.