by Lisa Brennan

A relocation clause in a commercial lease agreement allows a landlord to remove a tenant from their leased space and move them to another, similar space for the remainder of a lease term. This is most commonly found in shopping center leases and in recent years, has become more commonplace.

Landlord Benefits from Relocation Clauses

For landlords, especially those that own multi-tenant shopping centers, including a relocation clause in their leases is very beneficial. They have the flexibility to arrange and re-arrange tenant space in a way that best suits their needs or goals without having to wait for a tenant’s lease to expire. While there are various reasons for relocating a tenant, a landlord typically utilizes this clause when they need to entice or make concessions for a more desirable tenant.

Tenant Risks from Relocation Clauses

For tenants, especially small business owners, a relocation can be wildly disruptive to day-to-day business operations. They have invested significantly to build out their existing space to their exact needs. The business now needs to notify its customers of the move. Resources (including valuable time) now need to be devoted to the logistics of a move rather than the running of a business. And as anyone who has ever moved knows, moving is a hassle.

Negotiating the relocation clause at the outset is therefore very important. As a tenant, you want to make sure that any new space is approximately the same size and in substantially the same location. Additionally, any new space will need to be appropriately outfitted for your business. For example, a restaurant may have additional requirements for its kitchen design and functionality. A daycare center will need to be on the ground floor and have sufficient playground space to meet state law.

Negotiating a Relocation Clause

When a landlord presents you with a lease containing a relocation clause, don’t be alarmed. While the landlord may prefer a relocation option for the reasons described above, these things can be negotiated. Good negotiation begins with conversation around key questions. Can we take this out? A good place to start. If the landlord refuses, we can pivot to other discussion topics. Will the landlord agree to pay reasonable costs of any move? If they move you to a smaller space, will they decrease your rent proportionally? How much notice does your landlord have to give you? If they move you to a larger space, are you suddenly now responsible for a larger portion of the center’s common areas maintenance (“CAM”) charges? These are important topics to discuss. Even more important is asking them during the lease negotiation process rather than as the moving truck pulls up.

Ultimately, the relocation clause is never front and center in a lease negotiation process. But a lack of prominence doesn’t mean reduced importance. Where the removal of the relocation clause might be a dealbreaker for the landlord, good discussion can help create a better balancing of the interests and burdens so that the weight of a relocation does not fall on the tenant alone. By asking the right questions and fairly negotiating at the outset of the landlord tenant relationship, you will better protect yourself and your business.