In the world of commercial real estate, change is inevitable. Portfolios expand, assets are sold, tenants churn and market conditions shift. Yet energy contracts often span multiple years, creating a misalignment between ownership flexibility and contractual rigidity. When not properly managed and negotiated, energy contracts can be costly to exit when a building’s ownership changes. Understanding contract language can help commercial real estate owners ensure that their energy buying is strategic while also being flexible to fit a sometimes unpredictable industry.
Contract Language that Supports Growth
When a customer enters into a contract, their estimated annual usage will be projected, however, usage rarely stays static. Weather volatility, tenant turnover, occupancy shifts and expansion plans can all materially change consumption. This is why swing language can be critical.
Most suppliers include 100% swing language in their contracts that allows a customer to essentially double their usage or go down to 0 usage without having to pay the market price. For growing portfolios, this flexibility can protect against unexpected cost exposure.
While swing language protects against changes in usage patterns, it only addresses existing meters. Businesses experiencing growth may need to add new locations or increase their energy capacity. For example, a commercial building that adds new tenants may see the need for additional energy capacity. While swing language can prevent paying the market price due to an increase or decrease in usage, add/delete language can allow new properties to be added to a contract.
Add/delete language typically has a fixed percentage that dictates how much the additional meters or locations can account for. For example, a 20% add/delete clause in a contract means the customer can add or remove up to 20% of their usage. This is especially useful for retail properties because over the course of a contract, several stores could be opened or closed. Without thoughtful add/delete language, growth can unintentionally trigger repricing or create the need for additional contracts, increasing administrative burden and cost risk.
Exit Language to Prevent Early Termination Fees
For commercial real estate owners who are actively buying and selling properties, flexibility to exit a contract is essential. No one wants to feel stuck in an agreement and miss out on potential buying and selling opportunities, but Early Termination Fees (ETFs) can be a financial burden that makes exiting an agreement daunting.
ETFs are calculated based on the following factors:
In volatile markets, this calculation can result in significant charges.
This is where 30-day Opt-Out or Proof-of-Sale language becomes incredibly valuable. This language allows customers to exit the contract without an ETF upon the sale of a property as long as they provide written notice (typically 30 days) and documentation of the sale. Although this contract language often comes with a premium attached, the incremental cost can be modest relative to the potential ETF exposure it prevents.
For owners who are uncertain how long they will retain a property, this clause converts a potentially large liability into a known, manageable premium.
Energy Contracts Should Reflect Portfolio Strategy
Commercial real estate owners are disciplined about lease language, debt covenants and purchase agreements. So their energy contracts should reflect the same scrutiny.
A well structured contract can protect against market volatility while supporting portfolio expansion, preserving transaction flexibility and eliminating financial exposure in the form of ETFs. Poorly structured contracts can lead to friction during the sale of a property or at the time of renewal. Energy procurement should not just be about price, but how contractual terms can be aligned with ownership strategy.
When contract language is thoughtful and strategically negotiated upfront, owners gain what matters most: flexibility, protection and peace of mind.