Relocation, Part II

If a landlord and tenant agree to include the concept of relocation in their lease, then they need to address the details. Perhaps the landlord will agree to handle and pay for the move and the construction in the new space. If the tenant has unique or high-end fixtures or equipment, it may want its own contractors to be in charge of the work, with the landlord merely paying the cost. The parties will also need to discuss what other costs the landlord will absorb, such as printing and advertising.

There is also the question of rent. If the new space is smaller than the original, it is fair for the tenant to ask for a per-square-foot reduction in rent. If the new space is larger, should the tenant be required to pay more for an unwanted move? The tenant may argue that a larger space may not necessarily lead to greater revenue and that it cannot afford to take on a higher rent. If the flexibility is important enough to the landlord, it may agree that there will be no increase if it moves the tenant to a larger space. They could also meet in the middle, depending on the rental structure. For example, if the tenant is paying a proportionate share of operating expense based on the size of its space, they could agree to leave the base rent calculation based on the original space square footage and increase operating expenses based on the actual percentage share of the new space.

Another consideration is trying to predict the location of the new space. If the tenant is initially in a prime location, it may not be willing to relocate to the far reaches of the center. As a compromise the parties can agree on a pre-approved area, and a site plan showing that area can be attached to the lease as an exhibit. So long as the proposed space is in that area, the tenant would not able to reject the new space based solely on its location.
For many tenants, timing is also a crucial issue when dealing with relocation. Tenants can’t be shut down and run a business. So that a tenant may minimize down time, it may insist that the new space be completely ready to occupy before it must leave the original space. In addition, it may require that no relocation occur during its busy season, typically from some time in the fall to some time after the first of the year.

When all else fails, there is always the ultimate right to terminate. If the landlord can’t present a palatable space, the tenant could have the right to terminate the lease. The tenant may not want to agree to those terms, but it may have no other choice if the landlord will not forego the relocation right completely. If the landlord agrees to grant a termination right to the tenant, the landlord can also require that it be allowed to withdraw the demand for relocation should the tenant elect to terminate. If the landlord has a back-up plan that allows it to achieve its goals and keep the tenant in the same location, it may be a way for the parties to preserve the lease.

Relocation is a sensitive subject for many landlords and tenants. Assuming that neither party deems it a non-negotiable term, there are many ways that the two sides can come to terms on a reasonable provision.