Relocation Clause Counsel One issue of key concern in almost every retail lease is negotiation of the relocation clause. A landlord wants the ability to relocate a tenant at any time, for any reason, during the entirety of the lease term. On the other hand, the tenant has rented a specific space in the retail center and sees no reason why the landlord should be able to change that location during the term of the lease. So how does the lease drafter resolve these clearly opposing viewpoints?
Maximizing Profits The goal to keep in mind in drafting the relocation clause is to define specifically the parameters applicable to the potential substitute space. The tenant expects a relocation space that will serve its needs and maximize its profits. The landlord seeks enough flexibility to relocate the tenant to the maximum number of locations and to lease as much of the center as possible at all times, thereby maximizing its profits as well.
The tenant also wants to avoid relocating during its busiest retail seasons, whether during the Christmas holiday period or during the back-to-school season, to decrease any impact on profits. The lease can be drafted to limit the timing of the relocation by creating dark periods when the landlord is not permitted to relocate the tenant.
Substitute Space Concerns Paramount among the tenant's concerns are traffic flow and visibility of the space. Therefore, identifying the potential location of the space is critical to the tenant.
One option is to define the relocation space as comparable to the tenant's current space. The substitute space can be defined as being on the same level of the center (in the situation of a multi-level center), or within a specified distance either from an anchor tenant or from an entry/exit point of the center. Another option is to depict, on an exhibit attached to the lease, relocation areas acceptable to both parties.
The tenant wants a relocation space large enough to effectively operate its business but not so large that rental obligations increase substantially. The relocation clause should define a minimum and maximum square footage. Alternatively, the parties can agree to cap any increases, regardless of increased square footage of the space.
Expenses Due to Relocation Another of the tenant's concerns is the cost incurred to relocate its space. Often, the landlord wants to move the tenant in order to bring in a new tenant that will pay more rent for the space, or to allow an existing adjacent tenant to expand. In addition, the landlord may want to expand the center, which may necessitate relocating certain tenants.
A narrowly drafted clause -- detailing the expenses that the landlord must reimburse the relocated tenant -- will provide the landlord the information necessary to weigh the potential income from the proposed new occupant against the cost of relocating the original tenant. The clause should include the expense of moving the tenant's inventory and equipment, as well as the cost of improving the substitute space to a specified condition similar to the initial space.
In addition, the lease drafter can limit the number of times during the term of the lease that the landlord may relocate the tenant to a substitute space. This limitation decreases expenses for both landlord and tenant, while still preserving the landlord's flexibility.
Flexibility vs. Expectation The landlord can also protect its options by preserving the right to terminate the lease if the tenant doesn't agree to relocate to an alternate space. The landlord would still be able to expand the center or bring in another tenant, and the tenant would not be forced to move to a less profitable or undesirable location.
Full negotiation of the relocation clause at the outset of the landlord-tenant relationship affords both parties flexibility and expectations. The landlord retains the flexibility to utilize the maximum square footage of its retail center. The tenant can assure itself that its location during the term of the lease -- whether in the space originally designated in the lease or in an alternate location to be determined by a well-drafted relocation clause -- will meet the expectations of maximizing profits.