Negotiating Relocation Provisions
Jun 1, 2000 12:00 PM, Jonathan Bauman
Few boilerplate lease provisions arouse retail tenants' concerns as much as relocation clauses. Even for tenants making few changes to draft leases from landlords, one change often will be crossing out any relocation clause altogether. This deletion usually owes to the fact that tenants carefully select the locations they lease within shopping centers.
If a landlord can force a tenant to move to another location in a center, not only will the move disrupt the tenant's business, but the tenant's plans and preparations for the initial space may fail to translate to the replacement space.
Meet in the middle For all but the largest tenants, landlords may resist removing relocation clauses in their entirety. For this reason, the parties should consider a number of possible compromises in order to resolve the tenant's concerns.
A first way to do so involves limits on the spaces to which a tenant may be moved. Namely, the parties can agree that the landlord may only move the tenant to certain designated replacement spaces within the center. For example, the approved spaces could be limited to other spaces on the same corridor as the tenant's initial space.
A second limit on relocation rights concerns time limits. In this case, the parties would agree that the landlord could only relocate the tenant during a certain portion of the lease term. For instance, the landlord might only have a relocation right after the first four or five years of a 10-year term.
A third limit on relocation involves the number of permitted relocations by the landlord. Here a tenant would request a cap on the number of times a landlord could relocate the tenant. Since relocation by nature creates upheaval in a tenant's business, tenants should seek a limit of one relocation by the landlord during the lease.
If the tenant has options to renew the lease, the parties should also specify whether the landlord may relocate the tenant any additional times during any renewal terms.
Space-related specifications present a fourth way to narrow landlords' relocation rights. Such specifications may be the most common method by which tenants try to restrict landlords' rights. Tenants can request several types of specifications, including, among others:
* that the relocation space contain no fewer usable square feet than the tenant's initial premises;
* that the relocation space be located as close to a major as the original space;
* that the relocation space have no less lineal frontage on its corridor than the storefront of the initial space; and
* that the landlord provide tenant improvements equal to or better than those in the original space.
Money matters Financial obligations provide one more way to limit the impact of relocation rights. At a minimum, leases usually require landlords to pay tenants' out-of-pocket moving expenses.
In addition, the parties can agree on the landlord paying other related expenses, such as costs of new stationery or business cards, costs of mailings to notify customers and vendors of the new location, and costs of marketing or promotional materials (either to replace existing materials referencing the old space or to promote the relocation itself).
Lastly, the parties can consider a rent concession as part of any relocation provision, in order to compensate the tenant for the disruption to its business.
The foregoing concepts provide landlords and tenants with tools to reduce the impact of relocation provisions. It may deserve mention that most of the concepts in this article apply equally to relocation issues for office leases (exceptions include proximity to majors and amount of lineal frontage; in the office context, two additional factors are the view from the new space and the floor on which the new space is located).
The bottom line is that since value in real estate derives so heavily from "location, location, location," parties should carefully consider any relocation provisions in their leases.
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