Can the landlord really recapture my office space and relocate my company arbitrarily? Unfortunately they can – if that is how your lease reads. If this provision is absent or diluted, great. Realistically speaking, many consumers when unrepresented in the market do not pay much attention to this important lease clause. We do.
A commercial tenant invests precious time to locate the right facility for their needs. They negotiate the transaction, balance the lease provisions, take occupancy, plant roots and so forth – just to be displaced by the landlord mid-term? That’s not what you bargained for. Well, sometimes it is. Office leases frequently include a provision that permits the landlord to relocate the tenant within the building or business park.
Why would a tenant want to be subjected to this power of the landlord? They wouldn’t, but sometimes they must. That said, Landlords may insist on retaining this right, but we can neutralize it.
As a Tenant Representative, I try to bring my clients’ attention to clauses like this and other potential pitfalls. Naturally, the best thing that we can do is strike the clause entirely. The problem is that many institutional landlords want to retain this right in the event they have an opportunity to lease a large block of space to a ‘credit tenant’ for a long-term, and do not want to be prevented from capitalizing on this potential opportunity because a portion of the subject space is encumbered by an existing lease (or lease rights).
It’s important to Landlords to maintain control of space in their building to accommodate tenants with the strongest financial positions. This applies to tenants in existing space on site and prospective new tenants. One way that an asset increases in value is based on the financial strength of its tenants. Therefore, when a landlord has opportunities to bolster its rent roll with ‘credit tenants’, they try to do so whenever possible. But what about the local or regional tenants’ interests? This is secondary to many institutional and local landlords. That said, the lease will govern – and this is why tenants must know the content of their leases and negotiate the most favorable terms achievable up front so they are not at their landlord’s mercy later.
These clauses often include provisions where the landlord is responsible for relocating the tenant’s furniture and possibly replacing some printed materials, but what about the voice and data lines? What about marketing material beyond letterhead, envelopes and business cards? What about the substitute premises? Will it be equivalent, superior or inferior? What about its window-line? Its views? Its condition? Its location on site?
How about its cost? What if the substitute premises is larger? Will you be charged for the larger space going forward even though this was not your choice and not in your company’s budget, or will the landlord only charge you based on the square footage of the original premises that you leased? It’s up you and your advisors to establish favorable or at least balanced terms for this potential future relocation.
Odds are that your landlord will never exercise this right, but they could – and this is why you must secure the most favorable terms achievable in your lease. An expert Tenant Representative can help you do this, and a Florida commercial real estate attorney can also be a great resource to help you balance or strike a provision like this.