You’ve found a great commercial office space rental to house your business operations and, with a great tenant representative (like we have at OfficeFinder) and any other needed advisors such as legal and accounting counsel; you are deep into the process of negotiating the best possible office lease for the office space location you want and need. At this point in the negotiation process take care to identify any relocation clause in the office lease and analyze how it could potentially impact your organization’s operation and earning potential.
What exactly is an office space relocation clause? This provision is contained in some, but not all, commercial office space leases, and gives the landlord the right to require the tenant to relocate their office space within the same premises in order to provide space for another tenant’s needs. Upon learning about this clause, you are very likely to say, “How very unfair to me and my firm!” and most tenants would agree. Keep in mind that most provisions in any lease tend to protect and be in favor of the property owner. For this reason, working with an experienced commercial office space tenant representative is important to protect your interests.
In an ideal situation, the landlord will simply agree to completely remove any office relocation clause in the office lease provisions. Some landlords, however, simply will not completely remove this verbiage, and then very clear, legally binding provisions must be negotiated to protect financial losses and periods of inability to effectively conduct business on the part of the tenant. It can be especially difficult when the property owner attempts to insist on keeping the verbiage “at the sole option of the property owner”, allowing the office tenant no right to refuse the request to relocate without terminating the lease at substantial penalty.
A scenario in which the landlord’s flexibility provided by the office tenant relocation clause could be invoked is a building consisting of three floors of 4,000 square feet of useable office space each. The first floor is currently empty and Tenant #1 leases 3,000 square feet of the second floor; the third floor is occupied by Tenant #2, a smaller office requiring only 700 square feet. A new tenant offers to lease 8,000 square feet of commercial space, but only if the office space can consist of the entire first and second floors. Clearly there is space on the third floor for both Tenant #1 and Tenant #2. Due to the much larger rental income from the potential new tenant who desires 8,000 feet of space on two floors, the landlord would find it most advantageous to require Tenant #1 to move to the third floor, sharing that floor with Tenant #2 who will not have to relocate. Of course, Tenant #1 may be very unhappy to uproot and relocate. If the lease were negotiated to avoid financial impacts to Tenant #1, the move might only be an inconvenience instead of a total disaster.
Points to be included in the negotiations for the relocation clause of a commercial office space lease you are considering for your enterprise should include:
- A reasonable notice period should be defined in the relocation clause to be used as a minimum guideline.
- The landlord should bear all costs caused by the relocation, including but not limited to finish work, painting, and moving costs.
- Office space tenant improvements completed in the original space at the cost of the renter should be redone in a comparable and agreed upon manner in the new location at the cost of the property owner.
- Costs associated with relocating utilities and other services such as network wiring should be borne by the landlord.
- Expenses incurred due to changing the business address, such as letterhead, business cards and signage, including those visible on the exterior of the building, interior doors and directories, and outdoor signs, should be paid by the landlord invoking the relocation clause.
- The relocation should not stop the company from doing business in that the space in which the company will move should be completely ready before the date of the relocation.
- If the space is less desirable for any reason, the tenant should have the right to terminate thie office lease, attempt renegotiation of the rental charges or receive some type of incentive for relocating.
- There should be no verbiage stating that the landlord has the right to terminate the lease should the tenant not agree to relocate. It could be in your best interest to negotiate verbiage stating that you have the right to terminate without penalty should you choose not to relocate into the space offered.
Clearly, this area of a commercial office lease can be quite tricky to negotiate. Your real estate professional will help you work with the landlord to obtain a relocation clause that both parties can agree to, should such clause be required by the landlord.Office Leasing Tips , Office Relocation , Office Rental , Office Space Negotiations