Hidden Costs in Your Lease: Relocation Clause

Negotiating a Commercial Lease to Avoid Unexpected Expenses from Landlord Relocation

When you sign the dotted line on your lease, the last thing your business anticipates is that your space could change throughout the term. But the fact is that landlords have the ability to change the location of your rented space, and the square footage measurement of your space is subject to change, as well. Both changes can have an impact on your budget and the rent you pay unless you are careful to negotiate around these potential financial snares.

Tenant Relocation Clause – How Your Landlord Can Change Your Space

The relocation clause is a landlord right that allows a landlord to move your company into a different space within the same building or building campus during your lease term. This is a surprisingly common term found in many commercial office and industrial leases. Landlords may invoke this clause for a variety of reasons, but it is most commonly used to combine a few smaller spaces in order to accommodate a larger tenant’s requirement.

How to Avoid Tenant Relocation Costs

This right can not only have a big financial impact on your business, but it can also affect your organization’s enjoyment of your space. Here are some of the important considerations to protect yourself within the language of your lease:

·    First and foremost, you should try to eliminate this landlord right altogether. If that is not possible, it’s important to negotiate enough notice time to evaluate and prepare for this move.

·    Next, make sure your lease language clearly states that the new space will match your existing space in size, design, and quality of finishes. This should include unique aspects of your space, such as certain floor level, the direction of view, or the number of dock doors.

·    Most importantly, your landlord should cover all costs associated with a relocation. In addition to all construction and moving costs, they should also cover smaller costs. This includes the cost of changing your company letterhead, business cards, and moving your data and communication needs, as well.

·    If the new space is smaller than your original or current space, you should negotiate to only pay on the smaller square footage; however, there should be a maximum size decrease of five percent to ten percent. Conversely, if the new space is larger than the original, you should only be charged for the initial square footage occupied.

·    Finally, you may want to limit the possibility of this relocation to one time per lease term and, ideally, that you can terminate your lease altogether in the case that the landlord cannot meet your space relocation conditions according to the specifications laid out in your relocation language.

Space Remeasurement – How Changing Space Measurement Standards Can Affect Your Lease and Rent Costs

Generally speaking, the square footage of your office or industrial space is multiplied by a net or gross rental rate to calculate your total monthly payments. Because of this basic method of calculation, it is critically important that you understand when your space measurement could change.

Since 1915, the BOMA organization, which stands for ‘The Building and Managers Association’, has been publishing the most typically used method of space measurement for commercial leases. As you can see, there is no ‘T’ for Tenant in the name of this association, and this measurement standard has been revised six times since the organization’s inception. And unfortunately for tenants, the building measurements only seem to get bigger, not smaller.

How to Avoid Space Remeasurement Affecting Your Lease Costs

This one-sided approach can be pretty concerning for business owners because it means a remeasurement will only likely increase the amount of your rent payments during your lease term. So, what can you do about this exposure? Here are a few items to negotiate for in order to avoid higher lease costs:

·        Tenants who have created good negotiating leverage can require that the measurement is fixed during their term and not subject to remeasurement by the landlord or changing BOMA floor measurement standards.

·        If negotiating a fixed space measurement throughout your term is not an option, try to negotiate a cap on any potential increase. Landlords historically have reacted favorably to capping a potential measurement increase to just a few percentage points during the term of the lease.

It’s important to be aware that these types of risk management strategies are not typical. You will definitely need to negotiate this approach if you want this type of protection to be in your lease. The bottom line here is to make sure that you have been thoughtful in creating some safeguards in your lease language to minimize or eliminate the risks a remeasurement would bring to your leasing costs.

Want an experienced professional to review your lease and make sure you are avoiding potential hidden costs? Reach out to a Rokos broker today!

We’re here for you and happy to help.

Rokos Advisors is an award-winning Minneapolis – St. Paul-based commercial real estate/tenant representation firm specializing in helping businesses find the perfect office or industrial space for their company.