h. Lewis’s management has been considering moving to a new downtown location, and they are concerned that these plans may come to fruition prior to the equipment lease’s expiration. If the move occurs then Lewis would buy or lease an entirely new set of equipment, so management would like to include a cancellation clause in the lease contract. What effect would such a clause have on the riskiness of the lease from Lewis’s standpoint? From the lessor’s standpoint?

If you were the lessor, would you insist on changing any of the other lease terms if a cancellation clause were added? Should the cancellation clause contain provisions similar to call premiums or any restrictive covenants and/or penalties of the type contained in bond indentures?