29/07/2014

Most tenants carefully select their commercial or retail premises based on the demands of their business, their desired location and the amenities available.

While some businesses can operate from almost anywhere, others have specific needs which require a suitable location.  For the latter, if they were required to relocate during the term of their lease, it could mean that the business is forced to close or suffer a loss in sales and unforeseen expenses.

This is where it is important to check your lease agreement prior to signing for any power the landlord may have to relocate your business to alternate premises.

Some lease agreements include a redevelopment or relocation clause which entitles the landlord to relocate a tenant to alternative premises during the term of the lease, in order to carry out major works to renovate or redevelop the building.  

Such clauses are generally included if the landlord is considering the possibility of redeveloping the building, if the premises are old or in need of work, or if there is the possibility of an attractive offer for commercial redevelopment being made.

As a tenant, the inclusion of a redevelopment or relocation clause in the lease agreement is of most detriment to you, rather than the landlord.  It is strongly advised that you ensure any such clause provides for adequate compensation in order to mitigate loss to your business should you be required to relocate to alternate premises.  

Practically, such a provision in the agreement should clearly set out a number of things:

1.    Compensation should be provided by the landlord, which covers the costs associated with moving the business and the new fit-out for the alternate premises, regardless of whether the new premises are provided by the landlord or are chosen by you following termination of the lease.  

2.    The agreement should provide that if the landlord provides alternate premises they must be reasonably comparable to the current premises in order to ensure a premises of similar size/location/use etc.

3.    An option to terminate the lease should be available to you if the alternate space provided by the landlord is not acceptable for your business.  Without this you may be forced to move into premises that are not appropriate for your business.

4.    Ideally a "black out" or exclusion period (ie. the two years of the lease or between May and July in any year) should be included so that the landlord cannot require you to relocate shortly after commencing the lease or during periods which might cause greater inconvenience to the business.   

5.    The landlord must waive any make good provisions required under the lease.  This may ease the costs and work involved with vacating the premises before the term expires.

Ultimately, where such a provision is included in the lease, it is wise to consider the risks to your business should the landlord require you to relocate during the term of the lease, and where possible make sure that the agreement does not leave you without any control or compensation should this situation occur.

For further information, call Townsends Business & Corporate Lawyers on (02) 8296 6222.