8x8 filed its annual report on 30 May 2018. The cover page says the voting stock held by people who do not run the company was worth about $1.2 billion. Exhibit 10.29 to that same report is a lease that lets 8x8 reduce its letter of credit once its equity market capitalization passes $2.4 billion.[1]
The two documents are in one accession. Nobody had to go looking.
“For purposes of this Section 21.9 , (i) the ’ First L-C Reduction Condition ’ shall mean that Tenant is not then in default under this Lease, and Tenant then has an ’equity market capitalization’ on a national public exchange of greater than Two Billion Four Hundred Million Dollars ($2,400,000,000) and (ii) the ’ Second L-C Reduction Condition ’ shall mean that Tenant is not then in default under this Lease, and Tenant then has an ’equity market capitalization’ on a national public exchange of greater than Three Billion Six Hundred Million Dollars ($3,600,000,000).”
This is the clause family almost nobody writes about. A tenant with thin credit posts a large letter of credit to get the space. The lease then promises the facility will shrink over time, which is how the tenant’s finance team justifies it to the board. The shrinkage is conditional. What the condition measures, and who controls the thing being measured, is the whole deal, and it sits in the last section of the letter of credit article where the signature pages are already in sight.
Four landlords, five leases and one assignment, all filed with the SEC, answer the same question five different ways.
What 8x8 actually agreed to#
The lease is the Coleman Highline Office Lease dated 23 January 2018, between CAP Phase 1, LLC and 8X8, INC., for the whole of 1143 Coleman Avenue in San Jose, 162,557 rentable square feet, a 132 month term. Item 7 of the summary reads “$ 8,100,000.00, subject to reduction as set forth in Article 21 below.”
That rider is the promise. Section 21.9 is the condition.
The mechanics are clean enough. On the first day of month 37 the amount drops to 50% of the original. On the first day of month 91 it drops to 25%. It never goes to zero. The tenant effects each drop by delivering an amendment to the existing letter of credit, and the landlord “shall reasonably cooperate.” Miss a date and the right is not gone: “then Tenant may reduce the L-C Amount as of such later date that Tenant is then satisfying the First L-C Reduction Condition.” It is re-testable, every day, forever.
So the structure is generous. The gate is not.
$2.4 billion is roughly double the number on the cover of the filing that carries the lease, and $3.6 billion is roughly triple it. The two figures are not measuring quite the same thing, which matters and which I will come back to. But the direction is not in doubt: at signing, 8x8 was nowhere near its own first threshold, and a 162,557 square foot lease commitment is not the kind of thing that moves a stock up 100%.
Look at what the test does not reach. Paying rent on the first of every month for three years does not help. Cash in the bank does not help. Revenue growth does not help. The only thing that opens the gate is other people’s opinion of 8x8, expressed daily on the Nasdaq, and the landlord wrote that opinion into the lease as a number.
The “not then in default” condition sits alongside the market cap test, not instead of it. Both have to be true at once. A tenant that has never missed a payment and whose stock sits at $2.3 billion is in the same position as a tenant that has never paid at all: no reduction.
Six months later, the same landlord, a different test#
On 1 August 2018 CAP PHASE 1, LLC leased 91,368 square feet at 1155 Coleman Avenue to ROKU, INC. Same business park, same landlord entity, same form, same section number. Item 7 reads “$2,960,323.00, subject to reduction as set forth in Article 21 below.” Section 21.9 reads:[2]
“the ’ L-C Reduction Condition ’ shall mean that Tenant has been ‘cash flow positive,’ on a trailing twelve (12) month ‘Adjusted EBITDA’ (i.e., after excluding from Net Income or Loss (i) other income (expense), net, (ii) stock-based compensation expense, (iii) depreciation and amortization, and (iv) income tax expense where applicable) basis during the twelve (12) month period ending on the last day of Tenant’s most recently completed fiscal quarter ending prior to the measurement date.”
Roku got an operating test instead of a market test. It also got to write the definition of its own metric into the lease, with four add-backs named one by one. Stock-based compensation is the big one for a company like Roku, and excluding it is the difference between a hurdle you can plan around and a hurdle you cannot.
Roku gave up two things for that. First, its clause has no default condition at all. That sounds like a win and is one: Roku can be in default and still reduce, where 8x8 cannot. Second, and this is the cost, Roku’s reduction is “Subject to the terms of this Section 21.9 , and Tenant’s satisfaction of the L-C Reduction Condition, which is to be confirmed by Landlord.” Five words that 8x8’s version does not contain. 8x8’s clause says the amount “shall be reduced” on satisfaction. Roku’s says the landlord confirms satisfaction first.
The landlord gave up the number it could not justify and took back control of the process. If you are keeping score on who won, I do not think the answer is obvious, and the two leases were signed six months apart by the same people.
Roku also has a single step, month 90, to 50%. 8x8 had two steps and a 25% floor. The smaller tenant exposure bought the simpler schedule.
Same tenant, same day, bigger building, extra step#
On the same 1 August 2018, Roku signed a second lease with CAP OZ 34, LLC, an affiliate, covering Buildings 3, 4 and the A2 amenity building, 380,951 square feet in total. The letter of credit is $16,950,795.00. The Adjusted EBITDA test is identical, word for word, including all four add-backs. The staircase is not:[3]
“the L-C Amount shall be reduced (i) on the last day of the forty-second (42 nd ) full calendar month of the Lease Term (the ’ First Reduction Date ‘), by Tenant’s delivery to Landlord of an amendment to the existing L-C … but in the amount of seventy-five percent (75%) of the original L-C Amount, and (ii) on the last day of the ninetieth (90 th ) full calendar month of the Lease Term (the ’ Second Reduction Date ‘), … but in the amount of fifty percent (50%) of the original L-C Amount.”
Two steps, month 42 to 75% and month 90 to 50%, where the small lease got one step at month 90. $17.0 million of exposure bought an earlier first reduction. $3.0 million of exposure did not.
That is a sensible trade and worth naming, because it runs against the intuition. The bigger the facility, the more a tenant’s treasury cares about the carry, and the more negotiating attention the clause gets. The small lease signed the same day on the same form has the worse schedule, probably because nobody fought over it.
The landlord changes its mind, in writing, with a date on it#
On 30 April 2019, 8x8 assigned the Building One lease to Roku. The instrument is an “ASSIGNMENT AND ASSUMPTION OF LEASE, LANDLORD’S CONSENT AND FIRST AMENDMENT OF LEASE” among 8x8 as Assignor, Roku as Assignee and CAP Phase I, LLC as Landlord.[4] It is the most useful document in this set, because it shows one landlord pricing the same clause twice, fifteen months apart, with the benefit of knowing how the first attempt went.
The $2.4 billion market cap test is gone. In its place:
“In addition, ’ First L-C Reduction Condition ’ shall mean the satisfaction of all of the following: (1) performance by Assignor and Assignee of all obligations under the Lease (as hereby amended) arising or accruing prior to the First Reduction Date, (2) there has been no material adverse change in Assignor’s financial condition since the Assignment Date, (3) Assignee not having received written notice of a monetary or material non-monetary default under the Lease, which then remains uncured, (4) neither Assignor or Assignee has filed a voluntary petition under the Bankruptcy Code, (5) an involuntary petition has not been filed against Assignor or Assignee under the Bankruptcy Code, and (6) the Lease has not been rejected or deemed rejected, under Section 365 of the U.S. Bankruptcy Code…”
Six conduct conditions where there had been one financial one. No market cap, no EBITDA, no revenue, no net worth. Perform, do not deteriorate, do not default, do not go bankrupt, do not reject the lease. Every one of those is about behavior the tenants control, and the only soft edge is “material adverse change,” which at least points at a named baseline, the Assignment Date.
Then the new letter of credit. Morgan Stanley Bank, N.A. issues it, and the amount is $4,050,000.00.
That is exactly half of 8x8’s $8,100,000. Roku came in at the number 8x8 would have reached if it had ever cleared the first step. And the agreement then says, in the middle of a list of four exceptions:
“(iii) the Assignee L-C Amount shall not be reduced on the First Reduction Date”
Read those two facts together and the structure is not a punishment. The landlord sized the new facility at the post-first-step amount and switched off the step that had already been taken. Roku is not being denied anything; it is being prevented from taking the same reduction twice. That reading is cleaner than treating it as a penalty, and it is the one the arithmetic supports.
It also leaves a loose end. The agreement carefully redefines the “First L-C Reduction Condition” as a six-part test, and then removes the only consequence that definition had. As the document stands, nothing in the letter of credit amount turns on whether those six conditions are met. I may be missing a use elsewhere in the lease, and the original Article 21 is long. But on the face of the amendment, six conditions were negotiated into a term that governs nothing.
The second condition did get real teeth. Roku’s EBITDA test survives and picks up two riders it never had in the Building Two and Building Three leases:
“that Assignee has not received written notice of a monetary or material non-monetary default under the Lease, which then remains uncured and Assignee is then occupying the Premises for the conduct of its business, and that Assignee has been ‘cash flow positive,’ on a trailing twelve (12) month ‘Adjusted EBITDA’ … basis”
The default gate is back. And there is now an occupancy gate: Roku must be “then occupying the Premises for the conduct of its business” on the measurement date. A tenant that has sublet the whole building, or gone dark while still paying, keeps the larger letter of credit no matter what its EBITDA says. That is a continuous operation requirement smuggled into the security deposit article, and it is the kind of thing a tenant-side reviewer reading Article 21 for the numbers will skim straight past. Going dark is usually a question about continuous operation covenants, not about collateral.
One more thing in that agreement, because it shows the same landlord using a third kind of financial test on the same day for a different purpose. 8x8’s release from liability is gated on, among other things, no “Material Reduction in Assignee’s Revenues,” defined as Roku’s trailing twelve month net revenue at 30 June 2021 being less than 50% of the same figure at 30 June 2019. Fixed dates, a named metric, a stated percentage, no judgment. That is the most testable clause in the document, and it is the one protecting 8x8, not the landlord. 8x8 also paid $800,000 for the release. A tenant walking away from an assignment it needed consent for will notice that the party with its own money at risk wrote the sharpest test.
Three answers to “what if I miss it”#
The interesting variation across these documents is not the test. It is what happens when the tenant fails the test on the date.
8x8 and Roku get pure re-testing: satisfy it later, reduce later, no penalty, no catch-up. The clause says the tenant “may reduce … as of such later date,” so it is a right the tenant exercises, not something the calendar does.
Unity Technologies SF got suspension. Its lease at 30 Third Street in San Francisco, dated 25 November 2015, with 26 THIRD STREET (SF) OWNER, LLC, carries a $5,235,000.00 letter of credit and a three step dollar schedule down to $1,745,000.00. Section 21.7:[5]
“If Tenant is in monetary default of this Lease or fails to satisfy the Reduction Condition as of a Reduction Date, but Tenant subsequently cures the monetary default or satisfies the Reduction Condition (as applicable), then any reductions that were suspended will re-commence as of the date of the cure … (provided that no such reductions shall be permitted in the event this Lease is terminated early as a result of such monetary default)”
Suspended, not forfeited. Revived by cure. Killed permanently only if the lease is terminated for that default. So far so similar to 8x8.
The sting is in the schedule. Unity’s second reduction is the later of month 65 and twelve months after the first reduction actually happened. The third is the later of month 77 and twelve months after the second. Each step is spaced at least a year from the one before it. Miss the first window by a quarter and you do not lose a quarter; you push every later step out by a quarter too, and the twelve month spacing means a single stumble can cost more than the window you missed. The clock restarts from performance, not from the lease.
Reddit got the best version. Its lease at 303 Second Street with KILROY REALTY 303, LLC, dated 31 December 2022, puts up $1,882,825.98 against three equal reductions of $313,804.33 at the start of Lease Years 3, 4 and 5, with a floor of $941,412.99, exactly half.[6] Section 21.11:
“If any of the L-C Reduction Conditions are not satisfied as of the applicable Reduction Date, then any decrease may take place retroactively upon satisfaction of the L-C Reduction Condition; provided that no decrease may take place retroactively if this Lease has been terminated as a result of an Event of Default by Tenant.”
Retroactive. A missed year can be caught up rather than merely resumed. Of the five documents, this is the only one where failing the test on the date costs the tenant nothing at all in the long run.
Notice also what Reddit’s Item 8 does not say. 8x8, Roku and Unity all carry a rider in the summary pointing at the reduction right. Reddit’s reads “Letter of Credit ( Article 21 ): $1,882,825.98” and stops. The right is real and sits in Section 21.11, but a reader doing a one page summary review would never know it was there.
The two clauses that produced nothing#
Here is the part a tenant should sit with. In two of these five leases, the burn-down clause appears to have delivered no reduction, and in one of them we can see what the tenant got instead.
Unity’s test was “positive earnings before interest, taxes, depreciation and amortization (’ EBITDA ‘) of at least $25,000,000.00 … for each of the immediately preceding four (4) consecutive trailing quarters.” Unity was heavily loss-making in 2015 and stayed that way for years. The first reduction date was month 52. The test was never close.
What happened instead is in the same exhibit. A First Amendment dated 23 January 2017 did this:
“The reference to ‘$5,235,000.00’ set forth in Section 8 of the Summary of Basic Lease Information is hereby deleted in its entirety and replaced with ‘3,977,738.67’.”
A 24% cut in the letter of credit, with no EBITDA test satisfied and no reduction date reached. It came out of a settlement. The recitals say Unity “has asserted that as of the Effective Date it is entitled to certain remedies as a result of Landlord’s delay in delivering the Premises,” and the amendment hands Unity $120,000 of additional rent abatement in the same breath. Section 5.3 even has the landlord acknowledging that the replacement letter of credit was provided “at Landlord’s request” and agreeing to reimburse Unity’s cost of issuing it.
The amendment also rewrote the whole reduction schedule, replacing lease month numbers with calendar dates and scaling every step down in proportion: $2,983,114.04 by 30 November 2020, $1,988,489.42 by 31 December 2021, $1,325,912.89 by 31 December 2022. The twelve month spacing survived. The $25 million EBITDA condition survived untouched.
So the tenant that could not satisfy its financial test got a 24% reduction anyway, by having a delivery delay claim to trade. The clause did not deliver it. Leverage did. That is a real pattern and it is worth being honest that it cuts against the usefulness of the clause: the reduction a weak tenant actually gets may have nothing to do with the test it negotiated.
8x8’s clause produced nothing either, at least not on the first step. We know that because when Roku took over in April 2019, fifteen months into a term that started no later than 1 January 2019, the landlord sized the replacement facility at exactly half and switched off the first reduction. Month 37 had not arrived. Whether 8x8 would have cleared $2.4 billion by then is a question the assignment made moot.
A test defined somewhere else entirely#
Reddit’s clause has the softest gate in the set and the strangest drafting. The conditions are “that Tenant has not received notice of a monetary default under this Lease which then remains uncured under this Lease and the Net Worth Test is satisfied.”
“Net Worth Test” is not defined in Article 21. It is defined roughly 56,000 characters earlier, in the assignment and subletting article, as one of the conditions for a Permitted Transfer:
“Tenant shall demonstrate to Landlord that there is no material reduction in the tangible net worth of the Permitted Transferee Assignee resulting from a Permitted Transfer under subsections (ii), (iii), or (iv) above as compared to the tangible net worth of the original Tenant as of the Lease Commencement Date (the ’ Net Worth Test ‘)”
Imported into Section 21.11, that reads oddly. It is written about a Permitted Transferee Assignee resulting from a Permitted Transfer, and at a reduction date there may well be no transferee and no transfer. The sensible reading is that Reddit’s own tangible net worth must not have materially declined from its level at the Lease Commencement Date, and I would expect both parties to have behaved that way. But that is a reading, not what the words say, and “material reduction” against a net worth measured on one historical date is a much softer gate than $2.4 billion or $25 million of EBITDA.
The same section has a smaller version of the same slip: it defines “L-C Reduction Conditions” in the plural and then, in the retroactivity sentence, refers to satisfaction of “the L-C Reduction Condition,” singular and undefined. 8x8’s Section 21.9 does the same thing in the other direction, opening with “Tenant satisfaction of the L-C Reduction Condition” when the only defined terms in the section are the First and the Second. These are small things. They are also the reason this clause family is worth reading closely: it sits at the back of a long article, it gets drafted by reference, and the defined terms do not always line up.
Nobody is writing about this#
I went looking for commentary and there is effectively none. The clause family generates no dated law firm alerts, in any window I could search, on reduction conditioned on financial tests. What exists is clause bank pages and undated vendor explainers.[7]
What the firms are writing about in 2026 is the other half of the letter of credit: evergreen and auto-extension language, and whether an automatic renewal clause creates a perpetual facility or lets the bank walk away on an anniversary. Skadden published on it in April 2026, Levenfeld Pearlstein in July, and O’Melveny’s Peter Breckheimer and Kathryn Turner in Law360 on 13 October 2026, under the title “How Evergreen Language Can Sink Landlord Credit Support.”
That is a real risk and a different one. It is about whether the instrument survives. This post is about whether the amount comes down. A tenant can win the evergreen argument completely and still carry $8.1 million for ten years because its stock did not double. We have covered the instrument failing on its own terms twice, once when the issuing bank gets downgraded and once when the lease is rejected in bankruptcy. The reduction condition is the part nobody has written the alert about yet.
Does your portfolio know which of its deposits can actually come down?#
The terms that decide it are spread across the back of the letter of credit article, and no two of these five leases put them in the same place. Whether the test measures something the tenant controls or something the market does. Whether the test and a no-default condition both have to be true. Whether the landlord confirms satisfaction or the reduction simply happens. Whether a missed date is re-testable, suspended, or retroactive. Whether the steps are spaced from the lease or from the last reduction that actually occurred. Whether an occupancy requirement has been added. Whether the floor is 50%, 25% or a dollar figure. Whether the defined term the condition turns on is even defined in the same article.
Acrebase reads those terms out of the document and lines them up across a portfolio, so a clause gated on a $2.4 billion market cap and one gated on trailing EBITDA with four add-backs sit next to each other instead of in two leases nobody compares. The clause library holds the version your counsel approved, with fallback positions ranked in the order you actually trade them, and the AI drafts and redlines against it, so the five words “which is to be confirmed by Landlord” are a position you take deliberately rather than a phrase that survived because the deal was closing. If you would find out what your reduction condition requires by asking your bank to renew the full amount for the fourth year running, that is the problem.
If you are a landlord, keep the reduction right and make the test measure the thing you are actually worried about. You are worried about getting paid, so test payment behavior, liquidity and operating performance, not the equity market’s mood. A market cap gate looks tough and is mostly theater: it will either open in a bull market while the tenant’s operations deteriorate, or stay shut while a perfectly good tenant pays you on time for ten years, and in the second case what you have really done is make the tenant pay bank fees on money you were never going to need. The CAP Phase I entity worked this out and wrote six conduct conditions the second time. Do keep the confirmation right, keep a floor rather than letting the facility run to zero, and if the space is only valuable to you occupied, say so in the condition the way the 2019 amendment did. What you should expect to give up is the stock price.
If you are a tenant, work through four questions before you sign. First, can you actually pass the test, on the schedule in the clause, under your own plan? Put the threshold next to your board model and if the answer is no, the reduction right is worth nothing and you should be trading it for something else right now, a lower starting amount or a shorter term. Second, is the metric defined in the lease and defined by you? Roku’s four named add-backs are the single most valuable thing in any of these five documents. Third, what happens if you miss a date: get retroactive like Reddit, settle for re-testable like 8x8, and refuse a spacing rule that measures from the last reduction rather than from the lease, because that one compounds. Fourth, read every word of the condition for riders that are not financial at all. The phrase “is then occupying the Premises for the conduct of its business” is not a credit test, and it ended up in Article 21 of a lease where the tenant had already negotiated the credit test twice. Then check where the defined terms live, because if yours is defined in the subletting article, you do not yet know what you agreed to.
Footnotes
[1] Coleman Highline Office Lease between CAP Phase 1, LLC, a Delaware limited liability company, as Landlord, and 8X8, INC., a Delaware corporation, as Tenant. Item 1 of the Summary of Basic Lease Information reads “Date: January 23, 2018.” The Building is “That certain five (5) story building located at 1143 Coleman Avenue, San Jose, California, consisting of 162,557 rentable square feet of space,” commonly known as Building One, and the Premises is the entirety of it. Length of Term 132 full calendar months, with the Lease Commencement Date no later than 1 January 2019. Filed as Exhibit 10.29 to 8x8’s Form 10-K on 30 May 2018, accession 0001136261-18-000158: https://www.sec.gov/Archives/edgar/data/1023731/000113626118000158/exh10-29.htm
On the $1.2 billion. The cover page of that same Form 10-K states: “Based on the closing sale price of the Registrant’s common stock on the NASDAQ Capital Market System on September 30, 2017, the aggregate market value of the voting stock held by non-affiliates of the Registrant was approximately $1.2 billion,” excluding shares held by officers, directors and believed affiliates. The two numbers are not the same measure, and I want to be precise about it: the cover figure is non-affiliate float value at a single date roughly four months before the lease, while the lease tests total “equity market capitalization,” which would be higher. The comparison in the body is directional, not arithmetic. The clause defines neither a measurement date nor a source for the market cap figure, so how it would have been computed is not on the page: https://www.sec.gov/Archives/edgar/data/1023731/000113626118000158/body10k.htm
Two artifacts in Section 21.9 as filed. It opens “and Tenant satisfaction of the L-C Reduction Condition,” missing the possessive and using a singular defined term the section never defines, where Roku’s reads “Tenant’s satisfaction.” A page marker, “-32-,” sits in the stripped text inside the first sentence and has been removed from the quotation. Single quotation marks inside the block quotes stand for the filings’ double marks around defined terms.
[2] Coleman Highline Office Lease between CAP PHASE 1, LLC and ROKU, INC., Item 1 “Date: August 1, 2018,” for 91,368 RSF on the first, second and third floors of 1155 Coleman Avenue, San Jose, California 95110, a five story building of 186,620 RSF known as Building Two. Item 7 reads “$2,960,323.00, subject to reduction as set forth in Article 21 below.” Filed as Exhibit 10.26, accession 0001564590-18-021290: https://www.sec.gov/Archives/edgar/data/1428439/000156459018021290/roku-ex1026_204.htm
On the comparison with 8x8: the delivery mechanism, the re-testing sentence and the cooperation sentence track each other closely, and the substantive differences are the four named in the body. The documents do not say whether those were negotiated or reflect a change in a shared form.
[3] Coleman Highline Office Lease between CAP OZ 34, LLC, a Delaware limited liability company, and ROKU, INC., also dated 1 August 2018, covering 1173 Coleman Avenue (Building 3, 194,790 RSF), 1167 Coleman Avenue (Building 4, 163,272 RSF) and 1161 Coleman Avenue (the A2 amenity building, 22,889 RSF), 380,951 RSF in total. The letter of credit is $16,950,795.00. The L-C Reduction Condition is the Adjusted EBITDA test quoted in the body for Building Two, identical including all four add-backs, checked by comparing the stripped text of both filings. Filed as Exhibit 10.27 to the same Form 10-Q, accession 0001564590-18-021290: https://www.sec.gov/Archives/edgar/data/1428439/000156459018021290/roku-ex1027_205.htm
CAP OZ 34, LLC and CAP Phase I, LLC are treated as affiliates in the 2019 agreement at footnote 4; the relationship is not set out in the leases themselves. The entity is spelled with a numeral in the 2018 leases and a Roman numeral in the 2019 agreement, and I have reproduced each as it reads.
[4] “ASSIGNMENT AND ASSUMPTION OF LEASE, LANDLORD’S CONSENT AND FIRST AMENDMENT OF LEASE,” made “as of the 30 th day of April, 2019 (’ Effective Date ‘),” among 8X8, INC. as Assignor, Roku Inc. as Assignee and CAP Phase I, LLC as Landlord, amending the Building One lease at footnote 1. Filed by Roku as Exhibit 10.1, accession 0001564590-19-031292, and by 8x8 as Exhibit 10.19 to its Form 10-K, accession 0001023731-19-000037: https://www.sec.gov/Archives/edgar/data/1428439/000156459019031292/roku-ex101_49.htm
The Assignee L-C terms are in Section 9.2(a): Morgan Stanley Bank, N.A. approved as a “Bank” under Section 21.1, the $4,050,000.00 amount, 8x8 as initial Beneficiary, the no-reduction exception quoted in the body, and a dollar-for-dollar draw right for 8x8 matching any Landlord draw on the Assignor L-C. Section 9.1 resets the First Reduction Date to 100 days after the later of the transfer to Landlord and 1 January 2021. Section 9.2(b) carries the amended Second L-C Reduction Condition.
On the claim in the body that the redefined First L-C Reduction Condition governs nothing: the Release Conditions gating 8x8’s release are defined separately in Section 4.3, so they do not run off it, and I read Sections 4, 8, 9 and 10 and found no other operative use of the term. I did not read the entire un-amended Article 21, which the agreement incorporates by reference, so this is about the amendment as filed rather than a claim that the term is inoperative everywhere.
Section 4.3 requires, among eight items, 8x8’s payment of $800,000 “in consideration for the agreement to release Assignor from liability,” performance by both parties, no bankruptcy petition and no rejection under Section 365. The “Material Reduction in Assignee’s Revenues” test quoted in the body is defined in the same section. Two further amendments are named in the recitals, dated 6 November 2018 and 14 November 2018, neither of which I pulled; whether either touches Section 21.9 is unknown to me.
[5] Office Lease between 26 THIRD STREET (SF) OWNER, LLC, a Delaware limited liability company, and UNITY TECHNOLOGIES SF, a California corporation, for 53,016 RSF comprising the entire office portion of a six story building at 30 Third Street, San Francisco, California. Item 1 of the Summary reads “Effective Date: November 25, 2015.” Item 8 reads “$5,235,000.00, as such amount may be decreased pursuant to Article 21 .” Filed as Exhibit 10.7 to Unity’s Form S-1 in 2020, accession 0000950123-20-007654, roughly five years later, so the filing date is not the lease date: https://www.sec.gov/Archives/edgar/data/1810806/000095012320007654/filename2.htm
The condition precedent in Section 21.7 is both no monetary default and delivery of financial statements either audited by an independent CPA at a nationally or regionally recognized firm or prepared under GAAP and “certified as correct by Tenant Chief Executive Officer (CEO) and Tenant’s Chief Financial Officer.” Both officers, which is the strictest certification in this set and the only one requiring the tenant to deliver financials rather than assert satisfaction. Three artifacts in the section as filed, none corrected in the quotations: the second reduction date reads “the sixty-filth (65 th ) calendar month,” the certification sentence omits the possessive on “Tenant,” and the closing sentence refers to “the L-C Reduction Condition” where the term defined is “Reduction Condition.”
On the amendments. The First Amendment is “made and entered into as of Jan 23 , 20 17,” and its recital A describes the Lease as “dated November 20, 2015,” five days off the 25 November 2015 date in the Lease’s own Summary and in the Second Amendment’s recital A. I have used the Lease’s own date and am flagging the discrepancy rather than resolving it. Section 5.2 replaces the schedule with $2,983,114.04 by 30 November 2020, $1,988,489.42 by 31 December 2021 and $1,325,912.89 by 31 December 2022, each still subject to the twelve month spacing. Section 5.3 records that the replacement L-C came “at Landlord’s request,” that Unity was also providing an L-C to an Affiliate Landlord under a separate “703 Market Lease” of the same date, and that Landlord would reimburse Unity’s issuance costs. The reduction from $5,235,000.00 to $3,977,738.67 is 24.0%. Calling it settlement consideration rests on recitals B and C and on the rent abatement in Section 2 sitting in the same instrument; the amendment does not say so, and I am not claiming it does.
I have not established Unity’s trailing EBITDA at any reduction date. The statement that the $25 million test was never close rests on Unity being heavily loss-making in this period; I did not pull its financials to put a number on the gap.
[6] Office Lease between KILROY REALTY 303, LLC, a Delaware limited liability company, and REDDIT, INC., a Delaware corporation, for 47,872 RSF comprising the entire fifth floor of the South Tower at 303 Second Street, San Francisco, California 94107, term approximately five years and eight months, Effective Date 31 December 2022. Item 8 of the Summary reads “Letter of Credit ( Article 21 ): $1,882,825.98” with no reduction rider. Filed as Exhibit 10.4 to Reddit’s Form S-1 on 22 February 2024, accession 0001628280-24-006294: https://www.sec.gov/Archives/edgar/data/1713445/000162828024006294/exhibit104-sx1.htm
Three reductions of $313,804.33 from $1,882,825.98 leaves exactly $941,412.99, half the original to the cent. The reduction is effected by “Tenant’s delivery to Landlord of a certificate of amendment to the existing L-C.”
On the Net Worth Test. The defined term appears in Article 14 (assignment and subletting), among the conditions attaching to a Permitted Transfer, roughly 56,000 characters earlier in the stripped text than Section 21.11. I located both occurrences by offset and read the surrounding text of each. The reading offered in the body is my judgment about what the parties must have intended, not something the document states; the words as written are about a Permitted Transferee Assignee. I found no authority on how a court would read it.
[7] On sources. The clause language was located through SEC EDGAR full-text search. The productive query was the exact defined term “L-C Reduction Condition,” which returns twelve filings across the entire index and is essentially one West Coast office lease form; “Security Deposit Reduction Condition” returns three and “Letter of Credit Reduction Condition” returns one. The commercial term for this clause family is not a search term: “Burn Down Condition” returns zero, and bare “burn-down” returns several hundred that are almost entirely credit agreements and earnouts rather than leases. Landlords’ counsel write “Reduction of L-C Amount.” Each quotation here was checked against the stripped text of the filing itself rather than taken from a snippet or a summary.
On commentary. A survey of law firm client alerts, practice group updates, trade press and vendor material on security deposit or letter of credit reduction conditioned on tenant financial tests returned no dated law firm alerts at all, in or outside a recent window, only clause bank pages and undated explainers. That is what I could not find in the sources reachable for this post, not a claim that nothing exists.
On the evergreen cluster, the three items are: Danielle Li and Corey M. Vacca, “Evergreen or Expired? Courts Strictly Construe Auto-Extension Clauses in Letters of Credit,” Skadden, 15 April 2026, https://www.skadden.com/insights/publications/2026/04/evergreen-or-expired ; Varun Chari, “Review Your Letters of Credit: Courts Narrow ‘Evergreen’ Renewal Language,” Levenfeld Pearlstein, 8 July 2026, https://www.lplegal.com/content/letters-credit-courts-narrow-evergreen-renewal-language/ ; and Peter Breckheimer and Kathryn Turner, “How Evergreen Language Can Sink Landlord Credit Support,” Law360, 13 October 2026, https://www.law360.com/articles/2532761/how-evergreen-language-can-sink-landlord-credit-support . Titles, authors and dates were read off the pages. The Law360 piece is paywalled and I have not read its text, so it is cited for subject and date only. The first two both report a January 2026 federal decision construing an auto-extension clause; I have not pulled that docket and am not stating its holding.
I have not looked for a reported decision construing a reduction condition of this kind, and the absence of commentary makes me doubt there is much. Nor have I checked whether any of these five reductions in fact occurred, beyond what the 2019 assignment shows about 8x8’s first step and the 2017 amendment about Unity’s.
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