Relocation Clauses in Commercial Leases

A signed lease gives you a particular suite, so tenants are often surprised to find a paragraph that lets the landlord swap it. The clause says that on some amount of notice, the landlord may move you to other premises in the building or project, and that the lease continues on the new space. A Thompson Coburn post notes that the move can occur without breaching or canceling the lease.

The usual reason is that a larger tenant wants contiguous space, or a smaller tenant is sitting in the middle of a floor the landlord would like to deliver whole. So the clause tends to appear in forms for small tenants in multi-tenant buildings. Small tenants are the ones most likely to see it, and they are the ones for whom a disruptive move hurts most.

Is it enforceable? It depends on the wording and the state. The Thompson Coburn post, written from a California perspective, says California courts had published no opinion on enforceability when it was written, and it notes two limits: the implied covenant of good faith and fair dealing applies, and a landlord cannot move a tenant if that would make the tenant violate a law or regulation that governs its business. Ask your attorney what applies where you are, and plan on the clause working as written.

Bowles Rice’s advice is simple: ask the landlord to remove the clause entirely, and negotiate limits only if that fails. We agree. Thompson Coburn makes the same point in different words, saying that the clause is not boilerplate and both its inclusion and its terms should be negotiated.

Your leverage is highest before the lease is signed. Raise it in the proposal or letter of intent, not at the last turn of the lease. The strongest argument is specific to you. Clients find you at this address, patients need this ground-floor access, or you are spending your own money on the build-out. A landlord may give up the clause more readily for a tenant with a real reason, a long term or a meaningful share of the floor.

Some landlords will not delete it, especially in buildings where they often assemble floors. In that case, the rest of this guide is the fallback.

• ✓Is the right limited to a defined trigger, such as another tenant’s need for expansion space? Bowles Rice suggests this.
• ✓Is it limited to one relocation during the term? Bowles Rice suggests one per tenancy.
• ✓Is it barred late in the term? Bowles Rice suggests no relocation during the final two years, and you may also want protection in the first years after your build-out.
• ✓How much notice do we get? Bowles Rice suggests as much as possible, with a minimum of 90 to 120 days. The sample clause in the Thompson Coburn post uses 180 days.
• ✓Can the move be scheduled away from our busy season, year-end close or peak period?
• ✓Do we get to review the replacement space and its plans first, and can we object if it does not meet the standard?
• ✓If the replacement does not work for us, can we terminate the lease instead of moving?

The last point deserves emphasis. Neither article above focuses on a termination right, but it can be a useful fallback for a tenant with options, because it changes the conversation. A landlord who wants your space badly will then have to make the replacement attractive. You may also want to consider how a termination would treat unamortized costs you paid for.

Vague language such as "comparable space" invites a dispute at the worst moment. Spell out the standard in the lease.

• Size. Bowles Rice says the replacement should be at least as large as your current space. Thompson Coburn’s sample calls for at least as much square footage. Also check that a larger space does not raise your rent or your share of expenses.
• Quality of improvements. Thompson Coburn’s sample uses improvements "at least equal in quantity and quality" to the original premises. Bowles Rice suggests the same quality or better.
• Key features. Bowles Rice lists the number of offices and exterior windows. Add whatever matters to you, such as floor level, views, proximity to elevators, ground-floor access, plumbing or special power.
• Location limits. Thompson Coburn advises addressing how far you can be moved. Define whether the replacement must be in the same building, and whether it may be on a lower floor.
• Rent. Thompson Coburn suggests addressing whether base rent should be reassessed if size or foot traffic changes. Rent should not rise because you were moved.
• Readiness. The new space should be fully complete, with your data, phones and security working, before you are required to move.

Many relocation clauses say the landlord pays moving costs. That phrase can be read narrowly. Bowles Rice notes that landlords and tenants often disagree on what is reasonable, and that it typically covers making the space usable and paying a moving company. So write out the list. Items to consider include the following.

• Building out the new space to match, at the landlord’s cost and without using your allowance.
• The moving company, packing, supplies and disposal.
• Server, computer, internet and telephone work, including new cabling.
• Vendor services for equipment and fixtures.
• New letterhead, marketing materials, signage and website changes.
• Staff time to pack, unpack and set up.
• Lost productivity and any revenue loss while customers adjust. Bowles Rice suggests negotiating a rent reduction or waiver for a month or two to offset this.

Ask for reimbursement to be paid within a stated time after you submit invoices, and allow an offset against rent if the landlord does not pay.

Thompson Coburn raises the broader question of whether you are reimbursed for lost or reduced earnings. A landlord will often resist that, but a negotiated rent credit may get you to a similar place.

A relocation touches other clauses. Make sure that an amendment or a confirmation records the new premises, rentable area and share of expenses. Then check whether any expansion, renewal, signage or parking rights tied to the old suite carry over, and that restoration obligations do not apply to the old space or to work the landlord did at the new one.

Tenant Advisory Group represents tenants, and we look for this clause when we review proposals and draft leases, because it usually costs little to deal with up front. If you already have a lease with this clause and the landlord has given notice, that notice may also be an opening: a landlord who needs your space may have reason to discuss your rent, your term or a payment to leave. Talk with your attorney about your rights before you agree to anything.