A Fresh Take on CRE

How to Water Down a Relocation Clause

Landlords like big tenants. Quite simply, they're easier to deal with, and cause less administrative headaches. They sign longer leases, they do their own work, they understand real estate, and they pay a lot of rent. Sure, big tenants have their negatives as well, but on the whole, landlords prefer them.

To that end, if a landlord has the option to move a small tenant to make room for a big tenant, they might just do it and if your lease has a relocation clause, they can! So what exactly is a relocation clause? Well, it's pretty straightforward, and generally it says, that with XX days notice, the landlord can move you to another space in the building of a similar size, and charge you the same amount per sf that you are paying now, for the new space.

Given the significant cost of business downtime, if a relocation clause is exercised, it can cost a small tenant an incredible sum of money. With this in mind, when I submit an offer on behalf of a client, I always ask if the landlord's lease has a relocation clause.

So, what if the lease I am about to sign has a relocation clause, what do I do?

In this situation, you have 2 options. The first, of course, is to demand that the clause is removed from the lease. This is often possible, but for some landlords, the relocation clause is very important. In these cases, your best option is to water down the clause. Here's how you do it.

1) These clauses generally say that the landlord may move you anywhere in the building he/she chooses. You should change the clause to say that the landlord may only move you to a location on the same floor or higher. You may also wish to request that the floor is facing the same direction and gets better or equal light and views, and has at least as many windows.

2) Few spaces in a building are exactly the same size. The landlord will want to move you to a space of "similar" size, but how do you define similar. Furthermore, the landlord will want to charge you more for your new larger space! You should demand that the space your are moved to is equal or larger than the space you currently occupy. Additionally, your "proportionate share" of the building should not go up for tax and escalation purposes, and you should pay no more than you are currently paying for rent and electricity.

3) Moving expenses - The landlord should pay for all moving expenses.

4) Downtime expenses - The landlord should pay for all expenses related to business downtime.

5) Build-out - The landlord should build out your new space to a degree of quality that is as good or better than your current space.

6) Notice date - Demand that you receive plenty of notice of the landlord's intent to relocate you.

7) Other concessions - Free rent, additional tenant installation $, etc.

It's worth noting, that the relocation clause is really not as scary as it seems. Truth be told, landlords rarely relocate tenants. It's generally prohibitively expensive and very time consuming (even more so when you include all of the restrictions we did above). Also, there is rarely one small tenant on a large floor. Relocating one often means relocating the others. Nonetheless, it's important that you protect yourself.