Relocating An Existing Tenant

A landlord’s standard lease usually contains a clause requiring a tenant to move to another space in a commercial building or shopping center. A new tenant that is negotiating for space in the building might be surprised to see the clause before signing the lease, wondering about the reasons for it.

The owner or manager will seldom require any tenant to move to another space because it can be expensive for both the owner and the tenant. The clause must be in the lease, however, as the owner has to be able to manage space efficiently. 

This clause can require the tenant to move to other space in a building (or even to another adjacent one) on appropriate notice from the landlord at any time during the lease term. The usual reason to relocate a tenant is to consolidate scattered vacant space in a building to provide a large block of space for an existing or single incoming tenant.

If the commercial building is a shopping center, a first class tenant (in the sense of its ability to generate shopping traffic) might choose a certain location. The landlord might relocate existing tenants because that relocation will benefit every tenant in the center.

Objection To Relocation

The objections by a tenant can be obvious. The proposed new space is not as desirable. Goodwill might be lost by the tenant. The move will cause confusion within the business. A retail business can lose sales during the move. However, only the largest and strongest tenants will be able to eliminate the clause in the lease. These are the tenants least likely to be relocated anyway.

For the smaller tenant, the goal should be to ensure that the clause, if exercised, can not be done arbitrarily or at any cost to the tenant.

Conditions In The Lease

Here are some conditions that would normally be in the relocation provision:

• Advance notice. A tenant should get notice of the relocation with a right to access the new space in plenty of time before the moving date to get the new location ready for his occupancy.

• Reason for the move. The relocation should be for a definite cause and only in cases specified in the lease. Example: The incoming tenant that will be using the tenant’s old space will occupy a certain percentage of the property or a certain square footage. In this negotiation, the landlord may object to specific statements as this could limit his options.

• The new location. The proposed new location should be specified, when possible. Example: Same building or another specified building, specific floors. The square footage should be the same with minor variation and the space should be comparable in location, improvements and amenities.

• Rent adjustment. The landlord will want the tenant to pay the same rent per square foot. The tenant may argue that the rent should be based on square footage only with lesser rent for a smaller space.

• Moving costs. The landlord should agree to pay for all costs of the move, including moving expenses, painting and remodeling, so the space is comparable to the original space.

• Frequency of relocation. Only one relocation should be allowed in one lease term. In a long lease, no more than once in a specified number of years. If the relocation occurs in a specified number of months before the expiration of the lease, either or both of the parties can have the option to terminate the lease. If the landlord terminates, he may agree to pay the tenant a specified cash payment.