Relocation, Part I

Everyone seems to agree that much of the value in real estate comes from location. This concept impacts not only sales, but the rental market as well, making it easy to understand why landlords want the flexibility to move their tenants from one location to another. It is equally easy to understand why a tenant would want to avoid a move.

For a retailer, location is especially important. Retail tenants choose their locations and agree to economics based on a variety of factors, such as accessibility, visibility, parking and signage. For a landlord to have an absolute right to move a tenant, it must either have great leverage at the negotiation stage or be willing to concede on some points.

Assuming the latter is the case, then the first consideration is finding a space which is comparable in terms of size and the factors noted above. If a tenant is front and center in a shopping center, facing the main entrance and near the primary parking area, that tenant will not want to move to a far end of the center that receives much less traffic. In an odd-shaped center, a tenant occupying an end space facing a busy corner and making use of two sides of the building for signage will not want to be buried in a middle space facing a back courtyard. Tenants typically look at multiple locations before negotiating a deal, and in most cases they want to remain in the space they chose after a long search.

For a landlord, the right to relocate may be so important that it is willing to lose a deal over it. The landlord may need flexibility to put together multiple spaces to accommodate a large potential tenant, and if that’s the case it cannot allow a small tenant to stand in its way. Even with a tenant negotiating for a larger space, if the landlord has redevelopment plans for the long-term benefit of the center, the landlord may be unwilling to take on a tenant who would prevent the implementation of those plans. Depending on the situation, a tenant may not be able to come into a center and demand that the landlord forego a right to relocate its space.

In Part II, we will examine the issues that arise in negotiating the relocation provision.