Negotiating a commercial lease is a very involved process. There are numerous items of concern, and most people fixate on the term of the lease, the amount of rent, and the right to renew. While these terms are important, there often other provisions in a lease that can have very significant consequences. One provision that often gets overlooked involves relocation.
In short, a relocation provision allows the landlord to unilaterally move a business from its current location to a new location. Landlords have these clauses in place to give them flexibility for future tenants. For example, if a national chain is interested in a large space but the landlord only has a few small units throughout the complex to offer, the ability to move a smaller tenant elsewhere could result in the landlord freeing up adjacent units to accommodate the larger tenant. Obviously, relocation can have a huge impact on a business as they would not only have to incur the costs of moving but also shut down the business to complete the move (which could result in a loss of revenue). Furthermore, if the new location they are moved to is not as lucrative, the business’ future revenue could decrease. Given these potential consequences, tenants should negotiate the relocation provision with the landlord before signing the lease.
When negotiating with the landlord, the ideal situation is to have the relocation clause removed in its entirety so that the tenant does not have to worry about being forced to move during the term of the lease. If the landlord does not agree to this, there are still some options in terms of reducing the effect of a relocation. For example, a tenant could negotiate that any relocation must be to a unit that is similar to their existing space. This can be done by specifying that the new location must have square footage within a certain range or that it must be located within a certain distance of the previous location. Another point to negotiate is the costs associated with the move. Since the landlord is forcing the tenant to move, having the landlord cover these costs (such as hiring movers, changing marketing materials to reflect the new address, etc…) is a fair compromise.
So, next time you are looking at a commercial space for your business, remember to check the relocation provision in the lease.