Many commercial real estate leases contain tenant relocation clauses, which allow the landlord to require that the tenant move to different rental space. Since relocations are uncommon, tenants may not pay attention to those clauses when negotiating their leases. However, the terms in the relocation clause can make–or break–a tenant’s business when triggered.
Landlords want to relocate tenants when the landlord can make more money by leasing the tenant’s space to someone else. Landlords will usually only move tenants to create a larger, contiguous space for another tenant. A larger, neighboring tenant may want to expand. Or a new tenant may require a space larger than the landlord has available.
Landlords typically will relocate only tenants who occupy small amount of space. It may be difficult for the landlord to find comparable, large spaces to relocate tenants. And, the cost to move a tenant will be higher if the tenant has more space and therefore, more buildout, and more furniture and supplies to move.
The lease should restrict the reasons the landlord can relocate the tenant. Most landlords will only move a tenant if the rental space is needed for another, larger tenant that is ready, willing, and able to sign a lease. To prevent retaliatory relocation, the lease should not allow the landlord to relocate the tenant for another reason.
Leases typically require the landlord to pay the cost of relocating a tenant. However, leases vary in what they consider relocation costs. Some leases may only pay the cost of the physical move.
Tenants should insist that landlords also cover the following costs:
The tenant should not pay more rent if the landlord moves the tenant to larger or more desirable space. However, if the tenant’s new space is smaller or in a less desirable location, the lease should provide for a rent reduction.
The lease also should say when the landlord can relocate the tenant. The relocation clauses should require the landlord to give the tenant written notice before the relocation. Tenants should be sure that the notice is long enough before the relocation so the tenant can make appropriate plans.
All leases should contain parameters on the condition, size, and location of tenant’s new space after relocation. For instance, if it is important to the tenant that its space be near to the elevator or have a certain number of windows, the lease should specify those requirements
The space should be of comparable size and should have a tenant buildout that works for tenant’s building. The tenant improvements should be comparable in quality and condition to those in the tenant’s current space. Landlords should pay all costs of modifying the new space to meet the tenant’s needs.
Tenants should consider whether they might want to cancel their leases if they don’t want to move. If so, the lease should allow that. Finally, because moving is stressful, tenants may want to restrict how often and how many times the landlord can make them move during the lease term.
Tenants should carefully review and negotiate relocation clauses. Tenants should consider what attracted them to the specific space they are renting and be sure that any new space meets those conditions. Finally, tenants should be sure that the landlord pays all direct and indirect relocation costs and should confirm that they will have adequate notice to play should a relocation occur.
Smaller tenants may not be able to avoid relocation clauses. But, with care and planning, tenants can minimize the cost and stress a relocation puts on their businesses.