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Location, Location and Location (But Relocation?)
Given the age-old maxim of retailers that what matters is 'Location, Location and Location,' it is often difficult for an in-line retail tenant to confront the fact that its landlord can require it to relocate its store to other space in a mall or shopping center. On the other hand, owners of malls and shopping centers must retain the right to expand, to add new anchors and to remerchandise their properties from time to time ' thus, the 'Relocation' provision found in virtually all forms of in-line retail leases. This article explores the major issues that a relocation provision creates for a retail tenant and how some of those issues might be addressed in the lease.
It will serve to sharpen our focus to look first at a relocation provision taken from the form of lease used by the owner of a large regional mall, which is not an atypical provision. It states in pertinent part:
Landlord has the absolute right in its sole and unfettered discretion to relocate Tenant to another space in the Shopping Center. Landlord shall provide Tenant with not less than sixty (60) days written notice (the 'Relocation Period') of relocation specifying a date (the 'Relocation Date') upon which the relocation is to take place. During the Relocation Period, Landlord shall offer Tenant such alternative locations as may be available. In the event the parties agree on a specific location (the 'Relocation Premises'), then this Lease shall be amended to reflect the new location, square footage and rent. In the event Landlord and Tenant are unable to agree on the Relocation Premises during the Relocation Period, this Lease shall automatically terminate on the Relocation Date.
The clause goes on to provide that, if there is agreement as to the relocation space, rent will abate during a 60-day build-out period for the new space and the landlord will pay tenant the unamortized value of its improvements to the original premises. All very straightforward and to the point, is it not? Not exactly. Presented with such a provision, the retailer's concerns are myriad. For example:
- Will I have the same proximity to an anchor store as I now do?
- Will the traffic flows be as good as I now enjoy?
- Will the relocation space be large enough for my optimum merchandising layout?
- What will be the cost to me of the relocation and how will it affect the timing of my projected cash flows?
- Is my remaining term long enough to fully amortize the new furnishings, fixtures and equipment that the move will necessitate?
- What if the 'down time' during the move is longer than expected and adversely affects my store's profitability?
- What happens if I cannot see my way clear to relocate, and what are the financial consequences if I just refuse to do so?
So, what is a tenant to do?
The first thing a tenant will wish to do is to narrow the landlord's right of relocation to certain specified events, such as the addition of an anchor store or the expansion of the mall or shopping center floor area by more than a specified percentage. Moreover, the specified event must occur in fairly close proximity to the tenant so as to make relocation a necessity and not a whim. The tenant will also attempt to restrict the landlord from requiring relocation during the period of October through December, so as to avoid disruption during the holiday season and will seek to limit the number of relocations during the lease term, ideally to one. Some tenants are also able to bar exercise of the right of relocation during the first few lease years of their term and permit relocation only with their consent during the last year of the lease term.
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