Knowing The Relocation Terms in Your Lease Agreement

Landlords can use relocation clauses (also known as substitution space clauses) to preserve control of their properties and to move tenants to another space if a larger or more prestigious tenant needs the space. Tenants have options. This post will explain more about relocation provisions, how they work, and what rights tenants have.

What Are Relocation Provisions? How Do They Work?

It is not unusual to find provisions in commercial leases that allow landlords to move tenants from one area of a building to the next. This clause is added to leases by landlords to allow them more flexibility when accommodating current and future tenants.

It is not common to use relocation provisions. The reason is that most lease clauses make it the landlord's responsibility to pay for the moving costs. It's not something a landlord will make lightly because tenant relocation can have a significant financial impact.

However, landlords value flexibility. If they see a significant economic benefit from accommodating another tenant, they will make that choice.

Let's take an example: There are 8,000 square feet of office space on one floor of your building. This office space is equally divided between two offices. One office is occupied, and the other is vacant. The landlord may grant permission to the tenant to move to another floor if they are willing to let all of the 8,000 square feet.

What Rights Do Tenants Have?

Although it may seem like the landlord has all the cards in the world, it is important to negotiate any relocation arrangements.

First, consider removing the relocation clause entirely. Although it is unlikely that many landlords will agree to the change, it can give you a strong starting point in negotiations.

To limit your concerns and minimize the impact on your business, you can focus on the specifics in the lease language.

If you have to relocate, it is important to be specific about the spaces that you are willing and able to live in. In addition, it is important to know details such as the minimum square footage required for the new space and the landlord's plans for making necessary improvements.

It might be good to identify specific areas in the same building that are acceptable for a move. You can also set a limit on how many relocations you allow and a time limit for when it can occur.

You can negotiate for one relocation within the first three years of your seven-year lease. After that, in the event of a move, your company can relocate to an office space you have already chosen.

To allow tenants time to prepare, many tenants will request a long notice period of up to 120 days. You can also negotiate a clause that the relocation provision will be removed if your lease is renewed.

Consider what rent concessions, if any, you might be able to accept if your business is disrupted.

Last but not least, any move must be made in good faith. A landlord cannot force a tenant into a space that is contrary to any laws or regulations.

Protect Yourself

Real estate is still a very important aspect of the location. Unnecessary changes to your property can have a negative impact on your business. Therefore, it is important to understand how you can best protect your business from a possible relocation.