The Rent Term Premium for Cancellable Leases

Jiro Yoshida, Miki Seko, Kazuto Sumita

Research output: Contribution to journalArticle

5 Scopus citations

Abstract

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.

Original languageEnglish (US)
Pages (from-to)480-511
Number of pages32
JournalJournal of Real Estate Finance and Economics
Volume52
Issue number4
DOIs
StatePublished - May 1 2016

All Science Journal Classification (ASJC) codes

  • Accounting
  • Finance
  • Economics and Econometrics
  • Urban Studies

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