Understanding Relocation Provisions in Your Lease

Relocation provisions, also known as substitution space clauses, are a way for landlords to retain control over their premises and move tenants to a different space should another larger or more prestigious tenant arrive and need the space.

If the idea of a relocation provision doesn't sound like something you'd want to worry about in your lease, there are options you can negotiate as a tenant.

In this post, we'll let you know more about relocation provisions; how they work and the rights you have as a tenant.

What are Relocation Provisions and How Do They Work?

In many commercial leases, it's not uncommon to find a provision that allows a landlord to move tenants from one space in a building to another. Landlords will add this to a lease to give them extra flexibility in accommodating both current and potential tenants.

Relocation provisions are not commonly exercised. One reason for that is because most lease clauses will make the costs associated with the move the landlord's responsibility. So it's typically not a decision a landlord is going to make casually because a tenant relocation can have a real financial impact.

That being said, landlords want flexibility. They'll reserve the option to make this choice if there's the potential for significant economic gain on their side in accommodating another tenant.

Here's an example: On one floor of your office building, there are 8,000 square feet of office space equally split between two offices. You occupy one office, and the other is empty. If a prospective tenant is willing to lease all 8,000 square feet at once, the landlord can exercise the relocation provision and move your company to a substitute space on another floor.

What Rights Do Tenants Have?

While it can feel like the landlord holds all the cards, you should always negotiate when it comes to relocation provisions.

The first approach to consider is removing the relocation provision altogether. While it's unlikely many landlords will accept that change, it gives you a strong starting position in negotiations.

From there, focus on the details in the lease language as a way to limit your concerns and the potential impact on your business.

It's critical to get specific regarding the types of spaces you will find acceptable if you must relocate. Details such as requirements around minimum usable square feet in the new space and how the landlord will provide necessary improvements are all important to consider.

You might find the best approach is to cite specific locations in the same building where a move is acceptable, putting a cap on the number of relocations, and a time limit on when a move can happen.

For example, you can negotiate for a maximum of one relocation during the first three years of your seven-year lease period. Then in the event a move happens, your business can relocate to a specific office space that you've already found suitable.

Many tenants will also request a lengthy notice period, up to 120 days, for example, to give ample time to prepare. And you can negotiate a clause in your current lease that if you renew your lease, the relocation provision gets removed.

Finally, consider what, if any, rent concessions you would find acceptable if you have to relocate to compensate for the disruption caused to your business.

One last thing to note is any relocation must be made in good faith, and a landlord can't move a tenant to a new space that will violate any regulations or laws governing that business.

Make Sure You're Protected

Location is still an incredibly important part of real estate. Any unnecessary changes to your location can undoubtedly impact your business. So it's critical that you understand the realities of a potential relocation and how to best protect yourself against it.

This article was updated on 12/12/2024