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Don't fall too much in love with your space. The landlord's right to relocate tenants probably exists in your commercial lease and all other leases in the building.
Relocation rights are predominantly found in retail and office leases, and are more common in smaller tenancies (less than 5,000 square feet).
It allows the landlord to accommodate the growth of existing tenants and allows for the creation of new opportunities to attract new tenants.
The good news is that the relocation right is expensive for the landlord to trigger and typically is only exercised when trying to accommodate an expanding tenant in the building and can only be done if they have other, comparable space to relocate you to.
For a video example of a relocation clause and how we suggest to modify, see here:
Let's look at a sample lease clause and point out what should be modified and what is missing:
The Landlord shall have the right to relocate the Leased Premises to another location of approximately the same size on the Property as the Landlord, acting reasonably, deems equivalent to the present location.
Approximately the same size - what is the definition of this?
What if the landlord thinks an increase of 20% in the size is approximately?
It would be beneficial to insert a percentage increase or decrease.
What is the definition of Property?
Why is it not called Building? In some cases the definition of Property or Building can include other buildings the landlord owns.
Check the definitions section of your lease.
It would also be favorable if the space you are relocated to is larger than your current space, but that you still only pay on the square footage you originally signed on for.
For example, this would be an improvement for you (taken from a recent lease in New Jersey):
"If the square footage of the Relocation Premises exceeds the Premises, the Tenant shall only pay rent on the Rentable Area of the Premises for the balance of the Lease Term. For further clarity, if the Tenant shall not pay any more in Annual Gross Rent on the Relocation Premises than it currently pays on the existing Premises."
The clause above went on to read:
If the Landlord elects to move the Leased Premises, it will pay all costs of constructing the new premises to the same standard as the existing Leased Premises including, without limitation, the reasonable cost of moving the Tenant's property and equipment and reinstalling them in the new location. The Landlord shall not be responsible for any loss or damage occasioned to the Tenant by such move, or for any indirect or consequential costs.
Is there anything special about your space you would like to point out that makes it clear how expensive it may be for the landlord?
What about soft costs like business cards and stationery?
Typically 60-90 days. This allows for the landlord to make a deal with the tenant that will move into your premises. Any longer than 60-90 days may limit the landlord's ability to keep that prospective lessee interested.
This notice period will vary depending on the size of your space.
This would have to be something you negotiate either in the LOI (letter of intent) stage, or during the lease negotiation. It will likely not be found in the landlord's standard template so you would have to ask for it, and it would be unlikely a landlord would agree to this, unless you have a lot of leverage.
Welp. This is where it gets murky. Most leases have the landlord relocation right, but are unclear on what the consequences are if a tenant challenges the landlord's right.
That is why it is always best to clearly define what "comparable premises" really means. Stipulating that the space is within 5% or 10% of the square footage of the existing premises is very cut and dry.
What is not cut and dry is the location.
For example, who determines what is comparable in foot traffic in a mall? Or perhaps a relocation would leave you right beside your competition (or away from your competition).
In the case of a landlord relocation right that does not speak to the consequences, you have a claim that the landlord's proposed relocation space is not comparable, and the landlord has a case that you are in breach of the lease by not complying with the relocation provision.
If the landlord has the right to cancel the lease based on your refusal to move, this can be used as an excuse by the landlord to terminate the lease (without any real intention of invoking the relocation right).
Almost all landlord relocation rights will have them covering the costs of leaseholds in the new premises.
Be sure that the new premises will have similar improvements and installations as your existing premises.
What is typically lost is - what happens if you invested a substantial amount in tenant improvements and the landlord wants to relocate you, you refuse, and the landlord terminates the lease?
In this case, you would want protection that your unamortized cost of your tenant improvements be reimbursed to you.
Although it is rare, this does happen. Most relocation clauses have a right to relocate within the "Building", which seems pretty clear.
The problem is that in many leases there is a definitions section and within that the capitalized items are defined.
In some leases the term "Building" will be defined as the property in question, plus any other buildings the landlord owns (sometimes they will put a radius restriction on it).
While it may never be the landlord's intention to move you from one office building to another or one shopping mall to another, you certainly don't want to be reading that landlord right when you are trying to figure out how much negotiating leverage you have during a potential relocation.
This is tied to the previous paragraph. If the landlord has the right to relocate you to another property, then typically the rationale for relocating you is not provided and the landlord will just have a blanket right to relocate.
The spirit of the relocation is to accommodate growing tenants and to minimize vacant space. But if the landlord does not have a demolition clause and a sneaky relocation clause, they could use it to send tenants from one property to the next in order to demolish and redevelop the building you are in.
This issue is prominent in food courts - landlords will typically have the right to renovate just to freshen up the food court. While this is beneficial in the long run to keep the food court modern and keep foot traffic up, most leases will not offer any compensation for business interruption, but will allow a tenant to be out of the lease, often times with a right of first refusal to lease the premises after construction.
In some cases, yes.
All terms and conditions otherwise remain the same, but since your square footage may increase, your base rent, additional rent, CAM, or TMI will all be calculated using the new square footage.
That is why it is important to ask for a cap on an increase, and a benefit on the decrease.
Tenant shall not pay more in Gross Rent than required in the Lease. For further clarity, if the Rentable Area of the "New Premises" is higher than in the Premises, Tenant shall continue to pay Monthly Gross Rent as per the Premises and shall not pay an increased amount, despite the higher square footage. Conversely if the "New Premises" has a square footage that is less than the Premises, Tenant shall pay Gross Rent per square foot x the square footage of the "New Premises".
This could be difficult to attain and will depend on the size and leverage you have in the negotiation.
We found a food hall lease in which the relocation right stipulated a specific square footage range, and also provided a tenant right to cancel the lease on the basis of refusing to relocate.
Relocation of Premises. Without affecting the obligations of the parties under the Lease (except as specifically set forth in this Section 24.23), Landlord shall have the right at any time during the Term to relocate the Premises to other space in the Food Hall as it may exist from time to time on the terms and conditions specified in this Section 24.23.
If Landlord elects to relocate the Premises hereunder, then: (i) the relocation space shall comprise not less than approximately ninety percent (90%) and not more than approximately one hundred ten percent (110%) of the leasable area of the Premises; (ii) Landlord shall give Tenant at least ninety (90) days prior written notice before effecting such relocation; (iii) Landlord shall pay Tenant's reasonable and customary out-of-pocket moving and relocation expenses after receipt by Landlord from Tenant of invoices and other documentation deemed reasonably necessary by Landlord to evidence the amount of such expenses; (iv) Minimum Monthly Rent, Tenant’s Food Hall Percentage, Tenant’s Retail Percentage, and Tenant’s Project Percentage shall be adjusted prorata to reflect any change in the leasable area of the relocation space, and this Lease shall be deemed amended to reflect such adjustments; (v) prior to effecting such relocation, Landlord shall construct improvements in the relocation space reasonably comparable to the improvements existing in the Premises as of the date of Landlord's notice given under clause (ii) above; and (vi) the Lease shall be deemed amended to substitute a new Exhibit A showing the relocation space, which relocation space as shown on such new Exhibit A shall, upon Tenant's relocation thereto, constitute the Premises for all purposes under the Lease.
Within thirty (30) days after Landlord’s delivery of the written notice under clause (ii) above, Tenant shall give Landlord written notice as to whether Tenant objects to Landlord’s election to relocate the Premises hereunder. Should Tenant object to Landlord’s election to relocate the Premises under this Section 24.23, either Landlord or Tenant shall have the right to terminate this Lease, without liability to Tenant, effective sixty (60) days after the date of Tenant’s notice of objection under the previous sentence. In connection with Landlord's obligation to construct reasonably comparable improvements under clause (v) above, (A) Landlord shall have the right to adjust and/or redesign such improvements in order to accommodate such improvements in the size and configuration of the relocation space, (B) Landlord's obligation to construct such improvements in the relocation space shall extend only to hard construction installations, such as cabinets and finishes, and not to soft construction items, such as furnishings, fixtures and equipment, and (C) Landlord shall have the right to utilize existing improvements and fixtures (including trade fixtures) from the Premises (rather than constructing new improvements) to the extent such existing improvements may be accommodated in the relocation space.
Tenant shall be responsible for fitting out the relocation space with its personal property, furnishings, fixtures and equipment in order to prepare and occupy such relocation space for its business operations in accordance with the terms of the Lease, as soon as possible after substantial completion by Landlord of its construction of improvements in the relocation space under clause (v) above, but in no event later than ten (10) business days after the date Landlord notifies Tenant of such substantial completion. Other than as amended by the substitution of a new Exhibit A and any adjustment in Minimum Monthly Rent, Tenant’s Food Hall Percentage, Tenant’s Retail Percentage, and Tenant’s Project Percentage pursuant to clause (iv) above, this Lease shall remain unamended and in full force and effect in connection with any relocation effected hereunder. Tenant shall fully cooperate with Landlord to permit all actions necessary to effect relocation pursuant to this Section 24.23.
Unless either Landlord or Tenant has terminated this Lease pursuant to the provisions of this Section 24.23, within ten (10) days after request, Tenant shall execute and deliver to Landlord an amendment substituting the relocation space and adjusting the Minimum Monthly Rent, Tenant’s Food Hall Percentage, Tenant’s Retail Percentage, and Tenant’s Project Percentage as provided above.
There are no standard rules on this clause.
Basically any right or privilege you currently have, or want to have, can be negotiable.
Most tenants are not even aware that the landlord's right to relocate them during the lease term is even in their lease. While there can be benefits such as getting brand new space, a relocation can also be disruptive and costly. The rules of the game should be negotiated long before the lease is signed.
Still stuck? Consider a review of your commercial lease to get unstuck.
Follow up reading: how loose wording in a lease allowed a landlord to relocate a tenant and the tenant ended up paying 33% more rent: click here.