In Short
- A relocation clause allows landlords to move tenants to new premises, usually for refurbishment or redevelopment.
- Retail leases must follow state-specific rules, while non-retail leases rely on negotiated terms.
- Key factors to consider include notice periods, lease termination rights, comparable premises, and compensation for relocation costs.
Tips for Businesses
When negotiating a relocation clause, ensure it includes adequate notice, comparable premises, and clear compensation terms. Clarify whether you can terminate the lease instead of relocating. Always review state-specific retail lease legislation, as requirements vary. Seeking legal advice can help protect your business interests.
Table of Contents
It is common to find a relocation clause in a lease permitting the landlord to move a tenant out of their current premises and into alternative premises. This allows the landlord to carry out refurbishment work that requires vacant possession of the tenant’s premises. For non-retail leases not protected by retail legislation, the terms of the relocation (including scope for compensation) are entirely up to the parties to negotiate. Each party’s obligations regarding a relocation clause would be governed by its specific wording in the lease agreement. A retail lease, on the other hand, must contain a relocation provision. This provision must comply with the retail leases act in that specific state or territory. This article explores the issues you should know if your lease contains a relocation clause.
Non-Retail Leases
For leases that are not protected by the retail leases legislation, the following issues need to be taken into consideration when negotiating the relocation clause of a lease:
| Issue | Key Considerations |
| Timing of Notices | How much notice should the landlord provide before you must vacate the premises and relocate? Is six months’ notice sufficient, or do you require a longer period to organise your business for the move? Ideally, the relocation should occur no earlier than after the first year of your lease to prevent disruption during your initial term. |
| Relocation Requirements | The alternative premises should be comparable to the existing space in terms of size, rent, condition, location, visibility to clients, and suitability for your permitted use. |
| Right of Termination | If you choose not to relocate, will you have the right to terminate the lease? If so, how much notice should you give the landlord to exercise this option? |
| Compensation | What costs will the landlord cover for the inconvenience? Will they pay for dismantling, reinstalling, or modifying the fit-out in the new premises? What about legal and related costs arising from the relocation? |
| Rent Abatement | It may be possible to negotiate a rent reduction or abatement in the new premises for an agreed period to compensate for the disruption caused by the move. |
Consider, negotiate, and document these issues in the lease to ensure the relocation clause is clear and aligns with your understanding of the agreement.
A factsheet that sets out the three ways to end a commercial lease in Australia: surrendering your lease, assigning it or subletting it.
Retail Legislation
The retail leases legislation is state and territory-based, so the prescribed relocation provisions will depend on which state the premises are located in.
In New South Wales, Queensland, Victoria, South Australia, and the Australian Capital Territory, landlords must follow these steps before relocating a tenant:
- Provide Written Notice
The landlord must provide three months’ written notice, including the proposed refurbishment or redevelopment details. The notice must demonstrate that the works cannot proceed without the tenant vacating the premises. - Offer a New Lease
The landlord must offer a lease for the remainder of the existing term, with the same terms as the original lease. The terms must be adjusted to reflect differences in commercial values between the current retail shop and the new premises at the time of relocation. - Allow Lease Termination
The tenant can terminate the lease within one month of receiving the relocation notice. The tenant must provide written notice of termination to the landlord. If the tenant chooses to terminate, the lease will end three months after the relocation notice unless both parties agree otherwise. Suppose the tenant does not provide termination notice. In this case, they are deemed to have accepted the relocation offer unless an alternative agreement is reached. - Provide Statutory Compensation
The landlord must pay statutory compensation covering reasonable fit-out costs, legal expenses, and any other reasonable loss or damage resulting from the relocation.
State-Specific Regulations
Certain conditions apply only in specific states and vary by location. In the ACT, relocation is allowed only for repairs, refurbishment, redevelopment, or extension. If you are relocated for any other reason, the lease’s relocation clause becomes void. In South Australia, the lessor must provide details of proposed refurbishment, redevelopment, or extension before requiring relocation. They must confirm the work will start within a reasonable timeframe after relocation. These differences emphasise the need to understand state-specific retail lease laws. Carefully review the relocation clause in your lease based on the relevant legislation.
In Western Australia, a relocation provision in the lease must be in the prescribed form as set out in the Commercial Tenancy (Retail Shops) Agreements Regulation 1985. Suppose a relocation clause in the lease does not comply with the Regulation. Here, the landlord must apply to the State Administrative Tribunal for approval. If not, it is void and will be read down.
Requirements for a Compliant Relocation Clause
A relocation clause complies with the Act if it includes the following provisions:
- the tenant’s business may not be relocated without the landlord providing written notice (relocation notice);
- the relocation notice must specify details of an alternative retail shop to be provided to the tenant;
- the tenant must be offered a lease for an alternative on the same or better terms as the current lease;
- the new lease must be for a term at least equal to the remaining term of the current lease;
- the rent for the alternative shop must not exceed the rent for the existing shop, adjusted for any differences in commercial value;
- the landlord must cover the tenant’s reasonable relocation costs, including but not limited to dismantling, reinstallation, modifications to the fit-out, packaging, removal, and legal costs; and
- if no lease for an alternative shop is offered, the landlord must pay reasonable compensation, either as agreed in writing by the parties or as determined by the Tribunal if no agreement is reached.
Key Takeaways
A relocation provision in the lease can significantly interrupt your business. If your lease is not protected by retail leasing legislation, seek legal advice. Understand how to minimise the impact on your tenancy. Learn your rights to alternative premises or early termination if relocation is not viable for your business.
If you want assistance with your lease or get advice before entering into a lease transaction, our experienced leasing lawyers can assist as part of our LegalVision membership. You will have unlimited access to lawyers to answer your questions and draft and review your documents for a low monthly fee. Call us today on 1300 544 755 or visit our membership page.
Frequently Asked Questions
A relocation clause in a lease allows the landlord to move a tenant to another premises. This is often to carry out refurbishment or redevelopment that requires the current premises to be vacated.
Yes, relocation clauses are not uncommon, especially in commercial leases. They are more commonly found in leases governed by retail leasing legislation.
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