Structuring a Comprehensive Relocation Provision

In the sample approach, the landlord agrees to give the tenant notice of relocation on or before a date certain, which may coincide with the landlord's outside date for finalizing the plans for a redevelopment or the expiration of another tenant's option for the premises. In addition, the sample approach provides that the landlord will only relocate the tenant to a specific area of the project, which the tenant presumably agrees is an acceptable alternate location at the time of the lease negotiations.

Timing. The landlord and tenant should agree to a schedule for implementation of the relocation. This can be expressed as number of days for the relocation to be completed after the delivery of the relocation notice. Alternately, the timing can be based on a related event such as completion of the build-out of the relocation space. If the tenant has a business that is cyclical, the parties may want to build in a black out window during which the parties agree a relocation will not occur because it would be disruptive to the tenant's business. In the sample approach, the tenant retains the right to shift the timing of the relocation to a date when it will be least disruptive to its business. Another issue to consider is whether the tenant should subject itself to more than one relocation during the term of the lease and whether it should have the right to terminate the lease early if the landlord requests a relocation (particularly if the relocation request occurs during the latter stages of the term of the lease).

Conditions. In this section, the parties lay out their agreement regarding the lease terms that will apply to the relocation premises. If, at the time of the original lease execution, the parties are able to agree to an alternate premises that was already separately demised within the project, this section could simply contain a description of that alternate premises. It could include a statement that, after the relocation, rent will be 'x,' square footage of the premises will be 'y,' tenant's proportionate share of common expenses will be 'z' and so on. In most cases, such precise definition will not be possible. Instead, this section will include a range of acceptable sizes and locations for the relocation premises. In an office lease context, this section can contain requirements regarding window line footage and directions, elevator bank, and space configuration. This section will provide the procedure for determination of rent payable by the tenant after the relocation and procedure for the determination of any proportionate obligations of the tenant after the relocation. To the extent that the parties are unable to agree on the size of the acceptable relocation premises, the tenant may be satisfied with a cap on any increase in rental payments after the relocation.

In addition, this section establishes the parties' obligations for expenses related to the relocation which, in most scenarios, will be a list of costs that the landlord will either directly incur or for which it will reimburse the tenant (see an inclusive list in the sample approach). Just as important in some cases will be list of expenses for which the landlord will not be responsible, such as specialty computer and telecommunications equipment. The ability of the landlord to provide a relocation premises that realistically meets the obligations of this section, in practice, creates a condition on the landlord's ability to exercise its relocation right.

Procedure. Relocation, like the initial occupancy of the premises, may involve extensive preparation and planning for improving the relocation space and moving the tenant's property and employees. In a comprehensive relocation provision, the parties should provide for the planning, review, approval and implementation of the build-out of the relocation space and the tenant's move to the relocation space. This section also can be used to describe the allocation of responsibility between the landlord and tenant for all of the work that will be required by the relocation. The sample approach attempts to address the concerns of a tenant in a large space, which has been extensively customized to accommodate the tenant's business needs. In the case of a tenant that occupies a more generic space, the landlord's obligation may be only to deliver the relocation space as is or with building standard improvements.

Whenever there is a reasonable likelihood that the landlord will need to relocate the tenant during the term of the lease, the extra effort spent to include a comprehensive relocation provision will pay off for everyone when the relocation occurs.

Sample Approach To Comprhensive Relocation Provision

Relocation of Premises. Landlord shall have the option to relocate the entire Premises to [insert area or areas of the project] (the 'Relocation Premises'). Landlord may exercise such option by giving Tenant written notice thereof on or before [insert outside date for landlord's exercise of the relocation right]. The proposed effective date of the shall be not less than [insert agreed number of days] days following Tenant's receipt of Landlord's relocation notice, and such effective date shall be subject to change by Tenant, by notice to Landlord, to a date which is between [insert dates which are compatible with tenant's business cycle] in order to accommodate Tenant's reasonable business requirements. If Landlord exercises its option to relocate the Premises:

A. The Relocation Premises shall contain not less than [insert a minimum percentage] nor more than [insert a maximum percentage] of the rentable area contained in the Premises and shall [insert additional location requirements]. The foregoing notwithstanding, for purposes of Paragraphs C and D below and determining Tenant's obligations for rent, Taxes, Operating Expenses and any other payment based on the square footage of the Premises the square footage of the Relocation Premises shall be deemed not to exceed [insert percentage cap] of the square footage of the Premises immediately prior to such relocation.

B. Landlord shall pay the full direct physical moving expenses (including existing telephone, computer and office equipment relocation and wiring costs and cabling costs related thereto) incurred by Tenant in relocating from the Premises to the Relocation Premises and for improving the Relocation Premises so that they are substantially similar to the Premises, including any modifications made to the Premises by Landlord or Tenant in accordance with the terms of the Lease (other than Tenant's furniture, fixtures or equipment). In no event shall Landlord pay any indirect expenses incurred by Tenant in relocating from the Premises to the Relocation Premises (including salaries of employees of Tenant for the time allocated to such relocation, legal fees, or loss of business or profit).

C. From and after the effective date of the relocation, the Base Rent then in effect under the Lease shall be increased or decreased, as the case may be, to the sum obtained by multiplying such amount by a fraction, the numerator of which is the rentable area contained in the Relocation Premises and the denominator of which is the rentable area contained in the Premises.

D. From and after the effective date of the relocation, the rentable area of the Relocation Premises and Tenant's Proportionate Share shall be appropriately increased or decreased, as the case may be.

E. Within [insert agreed number of days] days following the delivery of Landlord's relocation notice, Landlord shall engage, on behalf of and with the reasonable approval of Tenant, a space planner, architect or other relocation consultant ('Relocation Planner'). The Relocation Planner shall, at Tenant's direction and subject to Tenant's reasonable approval and consistent with the provisions of this Section, prepare the 'Relocation Plan' (as hereinafter defined). The 'Relocation Plan' as used herein shall mean a comprehensive plan covering all aspects of the relocation including, without limitation, the schedule for the relocation, the preparations for the relocation, the physical relocation of Tenant's personnel, furniture, fixtures and equipment, and the modifications that will be made to the relocation premises. Upon completion of the Relocation Plan, Tenant shall deliver a copy of the Relocation Plan to Landlord.

F. Landlord, with the reasonable cooperation of Tenant, shall implement the relocation substantially in accordance with the Relocation Plan.

G. Notwithstanding anything in this Section to the contrary, Landlord shall have no right to cause Tenant to relocate and Tenant shall have no obligation to relocate its personnel, furniture, fixtures and equipment other than in accordance with the Relocation Plan and Tenant shall have no liability whatsoever to Landlord for any such failure to relocate in any manner other than as set forth in the Relocation Plan.

H. In every occasion where, under this Section, Landlord or Tenant is required to give its approval, such party shall deliver its approval or its disapproval (accompanied by an explanation of its reasons for disapproval) within [insert agreed number of days] days following its receipt of the item for which approval is requested.

Jeffrey D. Friedman is an associate in the Chicago office of Seyfarth Shaw where he concentrates his practice on matters involving business law, specifically real estate matters. He represents clients in the acquisition and development of retail and commercial facilities.

Relocation is one of those issues that often gets little attention at the time a letter of intent to lease is being negotiated and commonly surfaces when the initial lease draft is circulated. In a lease for premises in a multi-tenant project, the typical relocation provision offered by the landlord in its first draft will provide broad rights for the landlord to relocate the tenant coupled with narrow landlord liability for expenses. The landlord is frequently driven by its need to retain flexibility in leasing the property. During negotiations, the landlord will try to convince the tenant that it will not use the relocation right in a way that is detrimental to the tenant's ability to conduct its business. Unless the location of the premises is so critical that any right of relocation would be a deal breaker for the tenant, the tenant's typical response will be to seek to reduce the likelihood that the landlord will exercise its relocation right and to protect itself from expenses related to a forced relocation. In most circumstances, the tenant will seek to include as many direct and indirect expenses as possible in a list of items that will be reimbursed by the landlord in the event of a forced relocation. In some instances, a tenant may also request a fixed amount of compensation or rent abatement if it is relocated. The tenant's approach is often to make relocation very costly to the landlord in order to discourage a relocation.

When parties are negotiating a lease in a project that is slated for redevelopment or repositioning, the probability that a relocation will occur at some time during the term of the lease is enhanced. Ideally, the parties will include a comprehensive relocation provision in their lease. At a minimum, a comprehensive relocation provision should include: i) a description of the landlord's right to relocate the tenant, ii) the timing of the relocation, iii) a set of conditions under which the tenant will be required to relocate and which will apply after a relocation is completed and iv) the procedure for the physical relocation. This article will discuss these issues and provide an example of one approach to drafting a balanced relocation provision.

Right To Relocate. In order to describe the landlord's right to relocate the tenant, the parties will need to reach an agreement regarding the landlord's need for this right. If the need is tied to a redevelopment project, the landlord's right to relocate the tenant may be limited to the planned time period for the renovation ' or the landlord's right may be extinguished if it is not exercised before the completion of the redevelopment. In addition, if the parties are able to agree during the negotiations to one or more acceptable locations for any relocation, the landlord's right to relocate may be limited to those locations. This section should address the landlord's reasonably anticipated need to relocate the tenant, enable the tenant to understand and plan for those scenarios where it may be required to relocate, and give the tenant confidence regarding those instances when it will clearly not be required to relocate.

In the sample approach, the landlord agrees to give the tenant notice of relocation on or before a date certain, which may coincide with the landlord's outside date for finalizing the plans for a redevelopment or the expiration of another tenant's option for the premises. In addition, the sample approach provides that the landlord will only relocate the tenant to a specific area of the project, which the tenant presumably agrees is an acceptable alternate location at the time of the lease negotiations.

Timing. The landlord and tenant should agree to a schedule for implementation of the relocation. This can be expressed as number of days for the relocation to be completed after the delivery of the relocation notice. Alternately, the timing can be based on a related event such as completion of the build-out of the relocation space. If the tenant has a business that is cyclical, the parties may want to build in a black out window during which the parties agree a relocation will not occur because it would be disruptive to the tenant's business. In the sample approach, the tenant retains the right to shift the timing of the relocation to a date when it will be least disruptive to its business. Another issue to consider is whether the tenant should subject itself to more than one relocation during the term of the lease and whether it should have the right to terminate the lease early if the landlord requests a relocation (particularly if the relocation request occurs during the latter stages of the term of the lease).

Conditions. In this section, the parties lay out their agreement regarding the lease terms that will apply to the relocation premises. If, at the time of the original lease execution, the parties are able to agree to an alternate premises that was already separately demised within the project, this section could simply contain a description of that alternate premises. It could include a statement that, after the relocation, rent will be 'x,' square footage of the premises will be 'y,' tenant's proportionate share of common expenses will be 'z' and so on. In most cases, such precise definition will not be possible. Instead, this section will include a range of acceptable sizes and locations for the relocation premises. In an office lease context, this section can contain requirements regarding window line footage and directions, elevator bank, and space configuration. This section will provide the procedure for determination of rent payable by the tenant after the relocation and procedure for the determination of any proportionate obligations of the tenant after the relocation. To the extent that the parties are unable to agree on the size of the acceptable relocation premises, the tenant may be satisfied with a cap on any increase in rental payments after the relocation.

In addition, this section establishes the parties' obligations for expenses related to the relocation which, in most scenarios, will be a list of costs that the landlord will either directly incur or for which it will reimburse the tenant (see an inclusive list in the sample approach). Just as important in some cases will be list of expenses for which the landlord will not be responsible, such as specialty computer and telecommunications equipment. The ability of the landlord to provide a relocation premises that realistically meets the obligations of this section, in practice, creates a condition on the landlord's ability to exercise its relocation right.

Procedure. Relocation, like the initial occupancy of the premises, may involve extensive preparation and planning for improving the relocation space and moving the tenant's property and employees. In a comprehensive relocation provision, the parties should provide for the planning, review, approval and implementation of the build-out of the relocation space and the tenant's move to the relocation space. This section also can be used to describe the allocation of responsibility between the landlord and tenant for all of the work that will be required by the relocation. The sample approach attempts to address the concerns of a tenant in a large space, which has been extensively customized to accommodate the tenant's business needs. In the case of a tenant that occupies a more generic space, the landlord's obligation may be only to deliver the relocation space as is or with building standard improvements.

Whenever there is a reasonable likelihood that the landlord will need to relocate the tenant during the term of the lease, the extra effort spent to include a comprehensive relocation provision will pay off for everyone when the relocation occurs.

Sample Approach To Comprhensive Relocation Provision

Relocation of Premises. Landlord shall have the option to relocate the entire Premises to [insert area or areas of the project] (the 'Relocation Premises'). Landlord may exercise such option by giving Tenant written notice thereof on or before [insert outside date for landlord's exercise of the relocation right]. The proposed effective date of the shall be not less than [insert agreed number of days] days following Tenant's receipt of Landlord's relocation notice, and such effective date shall be subject to change by Tenant, by notice to Landlord, to a date which is between [insert dates which are compatible with tenant's business cycle] in order to accommodate Tenant's reasonable business requirements. If Landlord exercises its option to relocate the Premises:

A. The Relocation Premises shall contain not less than [insert a minimum percentage] nor more than [insert a maximum percentage] of the rentable area contained in the Premises and shall [insert additional location requirements]. The foregoing notwithstanding, for purposes of Paragraphs C and D below and determining Tenant's obligations for rent, Taxes, Operating Expenses and any other payment based on the square footage of the Premises the square footage of the Relocation Premises shall be deemed not to exceed [insert percentage cap] of the square footage of the Premises immediately prior to such relocation.

B. Landlord shall pay the full direct physical moving expenses (including existing telephone, computer and office equipment relocation and wiring costs and cabling costs related thereto) incurred by Tenant in relocating from the Premises to the Relocation Premises and for improving the Relocation Premises so that they are substantially similar to the Premises, including any modifications made to the Premises by Landlord or Tenant in accordance with the terms of the Lease (other than Tenant's furniture, fixtures or equipment). In no event shall Landlord pay any indirect expenses incurred by Tenant in relocating from the Premises to the Relocation Premises (including salaries of employees of Tenant for the time allocated to such relocation, legal fees, or loss of business or profit).

C. From and after the effective date of the relocation, the Base Rent then in effect under the Lease shall be increased or decreased, as the case may be, to the sum obtained by multiplying such amount by a fraction, the numerator of which is the rentable area contained in the Relocation Premises and the denominator of which is the rentable area contained in the Premises.

D. From and after the effective date of the relocation, the rentable area of the Relocation Premises and Tenant's Proportionate Share shall be appropriately increased or decreased, as the case may be.

E. Within [insert agreed number of days] days following the delivery of Landlord's relocation notice, Landlord shall engage, on behalf of and with the reasonable approval of Tenant, a space planner, architect or other relocation consultant ('Relocation Planner'). The Relocation Planner shall, at Tenant's direction and subject to Tenant's reasonable approval and consistent with the provisions of this Section, prepare the 'Relocation Plan' (as hereinafter defined). The 'Relocation Plan' as used herein shall mean a comprehensive plan covering all aspects of the relocation including, without limitation, the schedule for the relocation, the preparations for the relocation, the physical relocation of Tenant's personnel, furniture, fixtures and equipment, and the modifications that will be made to the relocation premises. Upon completion of the Relocation Plan, Tenant shall deliver a copy of the Relocation Plan to Landlord.

F. Landlord, with the reasonable cooperation of Tenant, shall implement the relocation substantially in accordance with the Relocation Plan.

G. Notwithstanding anything in this Section to the contrary, Landlord shall have no right to cause Tenant to relocate and Tenant shall have no obligation to relocate its personnel, furniture, fixtures and equipment other than in accordance with the Relocation Plan and Tenant shall have no liability whatsoever to Landlord for any such failure to relocate in any manner other than as set forth in the Relocation Plan.

H. In every occasion where, under this Section, Landlord or Tenant is required to give its approval, such party shall deliver its approval or its disapproval (accompanied by an explanation of its reasons for disapproval) within [insert agreed number of days] days following its receipt of the item for which approval is requested.

Jeffrey D. Friedman is an associate in the Chicago office of Seyfarth Shaw where he concentrates his practice on matters involving business law, specifically real estate matters. He represents clients in the acquisition and development of retail and commercial facilities.