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Hello,
Moving your office or retail store is never easy, but it is particularly difficult when you are forced to move.
In this newsletter we focus on relocation provisions, including the ten most important issues to cover to limit the disruption to your business caused by a relocation instituted by your landlord.
Sincerely,
Alan Katz Mintz & Gold LLP |
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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. |
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Featured Transaction
Mintz & Gold recently represented Granite Construction Northeast, Inc. in connection with the leasing of approximately 21,000 square feet on the third floor at 120 White Plains Road in Tarrytown, New York. Granite Construction is one of the largest diversified heavy civil contractors and construction materials producers in the United States. Granite builds roads, tunnels, bridges, airports and other infrastructure-related projects used by millions of people. In addition, Granite produces sand, gravel, ready-mix and asphalt concrete and other construction materials. Unusual among large contractors, Granite handles both large and small jobs through its regional offices nationwide.
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About Us
Mintz & Gold prides itself on providing the highest quality legal representation often associated with large law firms with the attention and reasonable costs of a smaller law firm. Mintz & Gold's Real Estate Department has a national practice specializing in a broad range of commercial real estate law, with a particular focus on commercial leasing. We have extensive experience with respect to office, retail and shopping center leasing, and have represented major Manhattan landlords, national and multinational institutional tenants and national retail chains. Most of our attorneys practiced for many years at large institutional law firms before joining Mintz & Gold. For more information regarding Mintz & Gold's real estate practice, click here. For a list of representative transactions of Mintz & Gold's real estate group, click here. For Mintz & Gold's website, click here. Contact: Alan Katz katz@mintzandgold.comTelephone: (212) 696-4848 Fax: (212) 696-1231 You are receiving this newsletter because you signed up to receive it or are a client, a friend or have worked with us on a prior transaction.
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Disclaimer
This newsletter has been prepared for general information purposes only, and is provided with the understanding and subject to the user's agreement that it does not constitute the rendering of legal advice or other professional advice by Mintz & Gold LLP, and does not create any attorney-client or other special relationship. The content of this newsletter may be considered advertising under the ethical rules of certain jurisdictions and prior results do not guarantee a similar outcome. You should not rely upon this newsletter without seeking legal advice from an attorney licensed in the relevant jurisdiction(s). THE CONTENT OF THIS NEWSLETTER IS PROVIDED AS-IS WITH NO REPRESENTATIONS OR WARRANTIES, EITHER EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND NONINFRINGEMENT. Additionally, the information contained in this newsletter does not constitute tax advice. Any discussion of tax matters contained in this newsletter is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties under the Internal Revenue Code or promoting, marketing or recommending to another party any transaction or matter. Copyright © 2012 Alan Katz. All rights reserved.
You may reproduce this article by including this copyright and, if reproducing it electronically, including a link to www.mintzandgold.com. No attorneys were harmed in the production of this newsletter.
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