Relocation clauses grant landlords the contractual right to transfer tenants to alternative premises, typically within the same property, to accommodate new tenants or reconfigure space for high-value occupants. While this gives the landlord flexibility to reuse their space, it also poses significant operational and financial risks for tenants if it isn’t handled right.
Lease provisions should guarantee matching replacement space in terms of square footage, layout, infrastructure quality, views and finish. Landlords should cover all relocation costs, including moving expenses, construction, new stationery (if needed) IT setup, signage, and downtime. Relocation events must be accompanied by at least 6–12 months’ notice, and tenants should have termination rights if the move proves unviable or disrupts operations. Any termination right should provide enough time to find new space and have it constructed (if necessary).
Key parameters of a Relocation Clause:
- Comparable Premises: The provision should specify that any substitute space must mirror the original in every material respect: rentable area, configuration (for example, private offices versus open plan), build-out quality, ceiling heights, HVAC capacity and access to natural light and views, it should also reference quantifiable benchmarks, such as “minimum 12-foot ceiling height,” or “comparable floor-plate depth”.
- Notice Period: Tenants require a clearly defined advance-warning window, typically at least six to twelve months.
- Costs and expenses: A landlord’s financial obligation must include all direct and indirect relocation expenses, including movers, construction, new stationery (if needed), IT setup reconfigurations, signage, plus a pre-approved business-interruption stipend (for example, reimbursement for up to five days of lost revenue). To prevent arguments about costs after a move, the lease should always specify pre-approved budgets or spending limits.
- Lease Terms: If the new premises fall short in size or quality, the clause should trigger an automatic pro-rata rent concession, ensuring rent parity and shielding the tenant from unexpected financial burdens.
- Rent. If the space is on a floor that could be expected to rent for less than the tenant’s current space, the tenant should request the lower rent. However, moving a tenant to space that could command a higher rent should not impose an obligation on the tenant to pay the higher amount, since the relocation is being done at the Landlord’s request and for the Landlord’s benefit.
- Termination Options: If the substitute premises fail to meet the agreed comparability metrics or materially disrupt operations, tenants should have a no-fault exit right, permitting lease termination without penalty. This option offers tenants a crucial insurance from being caught in an unwanted situation after they relocate. On the other hand the tenant could also request a lower rent to make-up for any shortfalls.
- Relocation Frequency Controls: Any such permissible relocation, if agreed upon, must additionally have a limit arbitrary move within the lease term and any subsequent renewal terms of this lease.
Ultimately, a carefully negotiated relocation clause balances landlord flexibility with tenant security, ensuring that any relocation is equitable, cost-covered, and operationally viable.
Richard Plehn
Ph: 646 481 7540
e-mail: rplehn@lee-associates.com
