Commercial Lease Agreements Examined–Relocation Clause

03 Apr Commercial Lease Agreements Examined–Relocation Clause

This is the third in an occasional series of posts examining terms in Commercial Lease Agreements. While other posts have examined terms more commonly found in lease agreements, this post is going to look at a non-standard provision, a relocation clause.

If a commercial lease agreement contains a relocation provision, chances are the lease is in a shopping center or a large light industrial complex with many similar and often interchangeable spaces. A relocation clause allows the landlord to relocate your business to another location often to accommodate larger tenants who want to expand their operations.

As stated above, a relocation clause is a non-standard clause and should be eliminated from the agreement if at all possible. Relocation can significantly impact your business as repeat customers will not be able to find you after your move, even if the landlord covers the cost of relocation.

Here is a typical relocation clause:

Relocation.  Landlord shall have the absolute right to require Tenant on sixty (60) days notice to relocate to another location (the “Relocated Premises”) in an existing or future building within the Project. The location, size and configuration of the Relocated Premises shall be in Landlord’s sole discretion. On the date of the relocation the Base Rent and Tenant’s Share shall be adjusted based on the size of the Relocated Premises, and all references in this Lease to “Premises” shall be taken to refer to the Relocated Premises.  Landlord shall reimburse Tenant for its reasonable out-of pocket relocation expenses. Tenant’s failure to deliver possession of the Premises as required shall constitute an immediate and material default hereunder.

You will note that this provision is pretty draconian. Most of the problems with this provision are pretty obvious:

• The landlord in this example has an “absolute” right to require the Tenant to move with just two months notice.
• The Landlord can move the Tenant to another location that might be the same size, might be smaller, could be larger. If larger, the rent would be increased immediately.
• The term “reasonable out-of-pocket relocation expenses” is vague and leaves the matter open to dispute as to what is reasonable.

If you cannot get the relocation clause eliminated, then you will need to get some factors changed. Here are some suggestions:

1. No more than one relocation during the lease Term. The Landlord can’t move your business around like a traveling circus.
2. No relocation in the last two years of the lease, depending on the length of the lease.
3. The new space will be within five percent (plus or minus) the size of your current location.
4. Landlord ensures the new space conforms your needs and any necessary changes to the new Premises are paid by the Landlord. All work to make the new space conform must be complete before the move is made. There should be no work pending to make the space fully ready.
5. If the new space is bigger than your old space, a three to six month phase-in of increased rent (remember you budgeted for a set rent cost for the entire term of the lease. If the space is smaller, rent is reduced immediately. Rent rates are to be based upon the rental rates per square foot in the current lease, not any base increase the landlord is shopping to new tenants.
6. A longer notice period for a relocation. I suggest a minimum 90 days, but 120 would be better.
7. Landlord pays all costs associated with the move, plus any loss of business as a result of the move. All costs should include smaller costs, such as changing your letterhead and business cards, to large expenses like a moving company.