In most commercial office lease contracts you will find a relocation clause (aka substitute premises clause) that allows the landlord to relocate you (the tenant) from one space to another in order to accommodate a larger tenant.
No matter the size of your company and whether you are leasing industrial, retail, or office space you should do everything you can to have the relocation clause removed from the lease. The location of the space is one of the main reasons why you picked it! Factors such as lobby exposure, accessibility, visibility to elevators, views, etc. are typical reasons why you would want to avoid this clause if you can.
Why Landlords Want the Relocation Clause
Landlord’s want to keep the relocation clause in the lease because it gives them the ability to attract or retain a larger tenant in the event that tenant needs a larger block of contiguous (space next to each other). Since landlords typically cover the cost of relocating a tenant they will ONLY do so if there is a significant economic advantage.
For example let’s say you are occupying 2,000 sf on a 10,000 sf floor of an office building and the remaining 8,000 sf is vacant. If the landlord gets a prospective tenant who needs 10,000 sf of contiguous office space and does not have a relocation clause in your lease the landlord will lose out on that deal and significant income. If there is a relocation clause in your lease then the landlord could relocate you to a different floor (as long as there is 2,000 sf available) and make that deal as well.
What Tenant’s Should Negotiate in a Relocation Clause
In reality relocation clauses are almost never exercised, however landlords still like to have the flexibility to. If you are not able to have the relocation clause removed then you must negotiate to have some parameters around it such as:
- Require that the landlord pay for 100% of the relocation costs including but not limited to: tenant improvements, moving everything (furniture, equipment, supplies, etc.) to new space, phone and data cabling, internet install and setup, telephone systems, reprinting of stationary and marketing materials, etc.
- If the space is larger than your original space then you should NOT have to pay anymore rent or other operating expenses greater than what would have been owed for your original space.
- The new space must have the same configuration and same number of windows and lighting as your original space.
- The ability to cancel the lease in the event the landlord is not able to relocate you to an acceptable space.
Again, the reality is that landlords do not exercise substitution clauses very often, however when they (the good landlords) do they make it attractive enough to satisfy you. That being said when negotiating office leases you should first push to have the clause removed completely. If the landlord won’t remove it then push to have detailed substitution language that defines what is acceptable to you and your company. By doing this you will ensure there will be NO gray area on who is responsible for what in the event the relocation clause is exercised by the landlord.
