Encyclopedia
Rollover risk
The risk that leases expire around the same time and tenants leave, leaving the owner with vacancy and re-leasing costs.
For example: Hypothetical: a multi-tenant building with most leases ending in one year carries high rollover risk. (Illustration only, not a real deal.)
This is a general industry term with no single official definition. Your lease or contract wording controls.
Example only, not a real client. Say you are buying a multi-tenant office building where several leases end in the same year. If those tenants leave together, income could drop sharply. You negotiate the price with that risk in mind and plan early renewals.
What I’d tell a friend
Look at when leases end, not just current rent. Several expiries at once is a risk worth pricing.
Why it matters to you
If several leases expire close together, income can drop sharply and refinancing can get harder. Lenders and buyers look at the expiry schedule, not just today's income, and price the risk in.
How to use it in your deal
Buyers should review the lease expiry schedule and model what happens if tenants leave: downtime, tenant improvements, commissions and free rent. Look at market conditions for that space type, tenant health, and whether tenants have renewal options. Lenders often reduce loan amounts or require reserves when rollover is concentrated.
Owners should start renewal talks early, stagger lease expiries, and keep good relationships with tenants. Tenants with leases ending at the same time as many others may have more leverage. Check whether renewal options are at fair market rent, which can help or hurt. Plan capital for re-leasing.
Talk to tenants a year or more ahead and ask about their plans; a tenant that's hiring may want more space, and one that's struggling may want out early. Single-tenant buildings carry the most rollover risk, since one departure empties the building. In a sale, sellers sometimes sign short renewals just to make the rent roll look better, so read renewal terms closely. Buyers can ask for estoppels confirming each tenant's expiry and options.
Mistakes I see
Ignoring expiry concentration. Underestimating downtime. Not budgeting leasing costs.
In BC and Vancouver
Lease terms govern; lenders' underwriting rules vary.
Official sources: Commercial Tenancy Act (BC Laws)
What it means
Rollover risk is the chance that tenants leave or renew at lower rents when their leases end, reducing income.
It is higher when many leases end around the same time or when a large tenant’s lease is ending.
Managing it
Review the lease expiry schedule, renewal options and the market for each tenant’s type of space.
Budget for vacancy, incentives and leasing costs around big expiries, and talk with tenants about renewals early.
Questions to ask before you sign
- When do leases expire?
- Which tenants are likely to stay?
- What would re-leasing cost?
- Are reserves required?
Keep reading
Related terms: Lease-up, Critical dates, Renewal option, Vacancy rate
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General information for British Columbia only. It isn’t legal, tax, accounting or financial advice, laws and rates change, and reading it doesn’t make you my client. Any numbers or scenarios are hypothetical. Check the linked official source and talk to a lawyer, accountant or other qualified professional before you act or sign anything. See the terms and disclaimer.