The Rent Term Premium for Cancellable Leases

  • Jiro YoshidaEmail author
  • Miki Seko
  • Kazuto Sumita


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.


Leasing Housing Asset pricing Cancellation options Term structure Expectations hypothesis Transaction costs Hedonic regression Japan 

JEL Classification

G12 G13 R31 



We thank Brent Ambrose; Yildiray Yildirim; Ed Coulson; Nai Jia Lee; James Conklin; Masahiro Okuno-Fujiwara; Hiroyuki Ozaki; Hiroyuki Seshimo; Toshiki Honda; David Geltner, Lynn Fisher; and the participants of the AREUEA International Conference in Korea, the ASSA meeting in Chicago, the Keio University Public Economics Seminar, the 26th ARSC annual conference, the 2013 Japanese Economic Association Autumn Meeting, and Maastricht-NUS-MIT symposium for providing valuable comments and suggestions. This research is supported in part by the Keio/Kyoto University Global COE Program of Japan and the Institute for Real Estate Studies at the Pennsylvania State University.


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Copyright information

© Springer Science+Business Media New York 2015

Authors and Affiliations

  1. 1.Smeal College of BusinessThe Pennsylvania State UniversityUniversity ParkUSA
  2. 2.Faculty of EconomicsMusashino UniversityKoto-kuJapan
  3. 3.Faculty of EconomicsToyo UniversityBunkyo-kuJapan

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