The relocation clause is often hidden in office leases. Here’s how to protect you and your business.
Often found hidden in an office lease, after a term sheet has been agreed to, and rarely disclosed in commercial real estate listings, the relocation clause allows the landlord the right to relocate the tenant if they wish. It’s a free call option for the landlord, which really means flexibility and optionality for them.
Why? The landlord may want to relocate you to another floor to make room for a larger tenant, or perhaps to remove you from the building altogether ahead of a sale. So, what are you to do to protect your business?
Option 1
Don’t sign a lease in a building with a relocation clause in the lease.
Option 2
Ask for specific periods of time. Perhaps you are signing a 7-year lease. Negotiate for the potential relocation not to occur until sometime in the future, minimizing the potential disruption to your business. This can be done by asking for some amount of heads up, or notice period, say minimum of 6-12 months, to prepare and explore options. Additionally, ask for a minimum amount of time in the space, like 3 or 5 years, so the risk of relocation is somewhat calculated.
Option 3
Make sure you know what type of space you could move to. You chose your office space because you liked YOUR space. It had the right light, proximity to the elevator, the right configuration of offices to open space. It should be comparable, not less than, what you have in terms of quality.
Option 4
Ask for the right to cancel if they choose to relocate you.
Option 5
Make sure you don’t come out of pocket for expenses. After all, it cost you a lot of money to wire, furnish, and get signage, and don’t forget all the costs associated with an actual address change. Make sure if you are being relocated, it’s on the landlord, not on you. Oh, and if there were responsibilities for any restoration, make sure that on a relo, that they shift to the landlord.
Relocation rights are completely enforceable if it’s in your lease. So do everything you can during the office leasing process to mitigate the risks and potential disruption to your business.
As always, any questions please don’t hesitate to contact me.