The Rent Term Premium for Cancellable Leases

The Rent Term Premium for Cancellable Leases This study analyzes the rent term premium for leases that can be cancelled by the lessee. We model the lessor’s trade-off between leasing costs and the cost of cancellation options based on the recognition that many leases are cancellable by lessees, and lease markets involve significant transaction costs. We demonstrate that, regardless of the expected future rents, the rent term structure is upward-sloping when there is no leasing cost but U-shaped when the lessor faces moderate leasing costs. Residential leases in Japan, which are all cancellable by tenants, exhibit the term structure that is consistent with our calibrated model. The Journal of Real Estate Finance and Economics Springer Journals

The Rent Term Premium for Cancellable Leases

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Springer US
Copyright © 2015 by Springer Science+Business Media New York
Economics; Regional/Spatial Science; Financial Services
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