<b><i>In the Spotlight:</i></b> Relocation Clauses

Landlord reserves and is hereby granted the right, upon 90 days' prior written notice to Tenant (the Relocation Notice”), to relocate Tenant and to substitute other premises within the Shopping Center for the premises originally leased hereunder (“Substitute Premises”) as though originally leased to Tenant as of the Effective Date, provided, however, the Substitute Premises shall not contain an area that is greater than 10% greater or less than the square footage contained in the original Premises. In the event of such relocation, all rent under this Lease will be adjusted in accordance with the floor area of the Substitute Premises, provided, however, in no event shall the rent exceed the amount per square foot due to the original Premises. Landlord agrees to pay the expenses reasonably incurred by Tenant incidental to relocating to the Substitute Premises, including the reasonable, out-of-pocket costs of moving Tenant's equipment and inventory from the Premises to the Substitute Premises. Provided Tenant submits to Landlord, within 30 days after Tenant's receipt of Landlord's Relocation Notice, plans and specifications for the decorations and improvements for the Substitute Premises, Landlord agrees to furnish the Substitute Premises with decoration and improvements substantially similar to those in the original Premises. Landlord will have the right to reuse the decorations and improvements used in the original Premises. Tenant will open for business in the Substitute Premises and will surrender the original Premises to Landlord on the date of delivery of the Substitute Premises to Tenant.”

Although a small tenant may not have the clout to entirely reject such a provision, there are several considerations a small tenant may bring up when discussing how a relocation provision, such as the one above, can be modified.

Timing of Relocation

The above provision, as written, could permit the landlord to relocate a tenant, not once, but several times. The landlord could have the same need to relocate a tenant who has previously relocated if another large tenant needs the space that the smaller tenant has moved into. When drafting a lease, a small tenant should consider asking a landlord if it would agree to a provision wherein the landlord can exercise its relocation rights only once during the term to minimize interruption to the tenant's business. A tenant could also request that a landlord exercise its relocation right only: 1) after the first year of the lease term; and/or 2) during non-peak times of the year, i.e., no relocation between Nov. 1 and Jan. 15. In such a case, even if a tenant were to be relocated more than once during the term, the tenant would be spared from being relocated during its peak selling periods (which could have adverse consequences not only for a tenant, but for a landlord as well, if the tenant is paying percentage rent).

Frontage of Relocation Space

A tenant may also be concerned that it may be relocated to a space that has less frontage than its existing premises. Without the same frontage, a tenant may have less visibility to its potential customers. The new space, however, may not have exactly the same square footage as the existing space. Many landlords respond to a tenant's request to have the same frontage by adding that the new space shall have the same “proportionate” frontage based upon the size of the substitute space. This could be an acceptable compromise for many tenants.

Location

As mentioned above, the location of a tenant in a shopping center could be of paramount importance to the success of a tenant's business. There are certain areas of the shopping center that may be much more desirable for a tenant to be operating in than others. For this reason, many savvy tenants request that a landlord attach an exhibit to the lease which indicates the specific location(s) that a tenant can be moved. This can assure a tenant that it will not be placed in an undesirable location if the landlord exercises its relocation right, even if the landlord exercises such right several times during the term of a tenant's lease.

Condition/Configuration of Relocation Space

A tenant may be concerned that the condition or configuration of the premises may not be as good as the tenant's original premises. Requiring a landlord to relocate a tenant into space that has a “substantially similar” condition with respect to decorations, other improvements and configuration may be a way to resolve this issue. It may also be a reasonable request for a tenant to ask that, if it is required to move to a new space, it have no obligation to remove from the original space certain alterations that it would otherwise be required to remove. Requiring a tenant to remove such alterations can be a costly endeavor, which requirement should be left, at a minimum, to the date the lease actually ends.

Relocation Expenses

Our sample relocation provision has a clause that requires the landlord to “pay the expenses reasonably incurred by Tenant incidental to relocating to the Substitute Premises.” In order to reduce the possibility that there could be a disagreement as to what expenses can be “reasonably incurred,” a tenant may want to list some of the items that it expects to be included on that list. For example, the tenant could add at the end of that sentence, “including, but not limited to, the reasonable, out-of-pocket costs of moving Tenant's furniture, fixtures, cabling, security cameras, telephones, computer equipment, inventory and other personal property of Tenant from the Premises to the Substitute Premises, and the cost of preparing any new advertising materials and stationary in connection with the Premises.”

Coordination of Relocation to Minimize Disruption to Tenant's Business

The parties may also agree that a landlord should coordinate the tenant's relocation to cause as little disruption to the tenant's business as possible. If a tenant has a strong bargaining position, it may even ask that the landlord use overtime labor, if necessary, to prepare the new space to its specifications so as to cause as little disruption to the tenant's business as possible.

Tenant-Favorable Provision Contained in the Sample Provision

There is at least one clause in the sample provision that a tenant may not find in other so-called standard relocation clauses: i.e. , the Substitute Premises “shall not contain an area that is 10% greater or lesser than the square footage contained in the original Premises.” If this clause is not in the lease form, it could be added to make sure that a tenant is not stuck with a space that is too large or too small for its operational needs.

Final Administrative Details

Providing that the description of the premises be deemed amended so that the substitute premises is, without further action, deemed to be the premises, and the entire existing premises is deemed deleted, will eliminate any confusion as to how both the substitute and existing premises will be treated on a going-forward basis under the lease.

Conclusion

It is important for both a landlord and a tenant to carefully review a relocation clause. The effective use of a relocation provision could have a huge impact on the success of a shopping center even for those tenants who are asked to relocate. Although a tenant's ability to have some, if not all, of the above-mentioned “pro-tenant” provisions added to the lease may be a function of a tenant's bargaining strength, do not assume that a client who leases a small space cannot have a lot of bargaining power. If the tenant is a national tenant and/or has leased a number of stores with the landlord at other shopping center locations owned by that landlord, the tenant may even be in a position to ask that the relocation clause be deleted in its entirety. However, if this is not the case, it is helpful for each of the parties to know what the other party may typically ask for when they negotiate a relocation provision.

Mark Morfopoulos, a member of this newsletter's Board of Editors, is an attorney in the real estate department at Wachtel Missry LLP. Reach him at [email protected].