Relocation and Tim Tebow: Here Today, Gone Tomorrow

Poor Tim Tebow. Just when he gets comfortable in Denver, ownership decides to make room for a future Hall of Fame player and he ends up being traded to New Jersey.

Now, I do not feel too bad for Tim Tebow, since trades are a part of the package, including the fame, fortune and adulation that we associate with professional athletes (and commercial real estate lawyers).

But only in professional sports can an owner unilaterally change the parameters of its contractual obligations and force the other party to move.

Well, actually no, that is not completely correct. Many leases grant landlords a relocation right which allows them to move tenants within their building, project or shopping center, often to accommodate the needs of another (generally larger, if not Hall of Fame) tenant.

Although relocation provisions typically affect smaller tenants, we often have had to address these provisions for Fortune 500 or other credit tenants taking smaller, satellite offices.

Is such a provision fair or reasonable? No.

Should it be resisted? Absolutely and vehemently.

Even if a landlord agrees to “make the tenant whole” and the tenant has a wonderful relocation provision, there is still a huge and unquantifiable disruption to the tenant in having to move its business and tenants should make every effort to remove this provision from their lease. In many instances, it can be removed from the lease entirely.

Unfortunately, sometimes the tenant will not have the leverage to remove the relocation provision and might not have reasonable alternative options to lease in another location. In that event, the tenant needs to specify the parameters of any such relocation as much as possible in order to limit the disruption.

If you find yourself stuck with a relocation provision, remember to address the following ten issues:

• The relocation should be at Landlord’s sole cost. This includes the cost to move, install communications and computer lines and replace stationery. Landlord should pay such costs directly or reimburse you upon presentation of invoices. Landlord should also waive any restoration obligations at the existing space.

• The new space should include comparable improvements. Landlord should be required to build out the new space (again, at its sole cost) in equal or greater quality as the current space, including improvements, fixtures, built-ins, finishes, ceiling treatments, conference rooms, offices, doors and hardware.

Use objective criteria as much as possible to determine what constitutes equal or greater quality (using objective criteria will also be valuable in terms of defining the size, location and configuration of the new space as provided below).

• The new space should be comparable in terms of size. Comparable can mean that the new space cannot be more or less than some percentage of the current space (e.g., 5% or 10%), but sometimes it may not be acceptable to you to have any reduction in space (in which event require the same rentable and usable area as your current space).

If the new space is larger than the existing space, your rent and additional rent should not increase (thus limiting the landlord’s incentive to provide you with too large a new space). If you must compromise on this point, then cap the rent and additional rent increases (i.e., not increase by more than an agreed upon percentage).

• The new space should have a similar configuration. Even spaces of the same size can have completely different shapes. A long and narrow space may not adequately replace a square space (e.g., for a retail store) and a tenant requiring many windowed offices (e.g. a law firm) cannot use a lot of interior space.

• Set specific parameters on the location of the new space. You should specify a “zone” within which you can be relocated. If you are an office tenant, you should specify the floor (e.g., no lower than the existing space), views (e.g. northern) and even the number of windows for each exposure, all of which are factors in the calculation of your rent.

Similarly, if there is more than one building in a project, you may want to limit which buildings are acceptable.

Location can be even more important for a retail tenant since it has a direct effect on sales, particularly in a shopping center. You will want to be sure that the new space is in an area that has not only a similar volume of traffic, but also the right kind of traffic. You can try to designate your distance from a particular anchor tenant or entrance or from particular wings or walkways of the center.

• Require that the landlord provide adequate notice. You will want at least 90 or 120 days (or possibly longer, depending on your business) to allow for a smooth transition.

• Make the relocation a one-time right. It will be difficult enough to move once, but many leases have no limitation on the number of times a landlord can exercise this right. Do not give the landlord the right to burden you repeatedly during your term.

• Limit the relocation right to particular times of year. Prevent the landlord from requiring you to move during your busy season, e.g. November and December for a retail store, January through April for an accounting firm, etc.

• Only allow landlord to relocate you to accommodate a major tenant. A major tenant can be defined by its size (e.g., a full floor or more office tenant or a shopping center tenant of a certain size). You may also want to further limit to a major tenant taking space on your floor or an adjacent floor.

• Landlord should make the same representations as to the new space as it did regarding the existing space. This includes representations regarding compliance with laws, being free of hazardous materials and latent defects, Building systems being in working order, etc.

If you must accept a relocation provision in your lease, first channel your inner Tebow and pray that it is never invoked. But just in case your prayers fall short, the pain of relocation will be much easier to handle if you make sure to cover these ten points in your lease.