It is not uncommon to find a relocation clause in a lease which permits the landlord to move a tenant out of their current premises and into an alternative premise for the landlord to carry out refurbishment work that requires vacant possession of the tenant’s premises.
For non-retail leases that are not protected by retail legislation, the terms of the relocation (including scope for compensation) is therefore entirely up to the parties to negotiate. A retail lease, on the other hand, must contain a relocation provision that complies with the relevant jurisdiction of where the shop premises is situated. Below we canvass the issues that you should be aware of if your lease contains a relocation clause.
For leases that are not protected by the retail legislation, the following issues needs to be taken into consideration when negotiating the relocation clause of a lease:
- Timing of the notices – how it advance should the landlord give you written notice to vacate your premises and relocate to other premises? Will six months’ notice be enough time or do you require a longer period to organise your business for the move?
- When will the relocation occur? Where possible, you should aim for the relocation to occur after the first year of your lease term to not cause your business interruption.
- What should the alternate premises look like? Will it be comparable in size, rent amount, convenience in location as the existing premises?
- Right of termination – if you do not want to be relocated, will you have a right to end the lease after giving written notice to the landlord?
- Compensation – what costs will the landlord cover for inconveniencing the tenant? Will the landlord pay for the dismantling of fit out, reinstalling or modifying fitout in the alternate premises? What about legal and ancillary costs associated with the relocation? These issues need to be thought through and documented in the lease.
The retail legislation is State-based, so the prescribed relocation provisions will depend on which state the premises is located in.
In New South Wales, Queensland, Victoria and Australian Capital Territory, the landlord may not relocate a tenant until it has complied with the following:
- provide three months’ notice in writing with details of the proposed refurbishment, redevelopment sufficient that illustrates it is a proposal that cannot be carried out without vacant possession of the shop; and
- offer a lease for the remaining term of the existing lease on the same terms adjusted to factor into account the difference in the commercial values of the current retail shop and the alternative shop premises at the time of relocation.
- the tenant has a right to terminate the lease within one month of receiving the relocation notice by giving notice of termination in writing to the landlord in which case, the agreed lease is terminated three months after the notice of relocation unless the parties agree otherwise. If the tenant fails to give a termination notice, the tenant is taken to have accepted the offer of relocation unless the parties have agreed otherwise.
- statutory compensation includes payment for the reasonable costs of fit out and legal costs.
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. If a relocation clause in the lease does not comply with the Regulation, the onus is on the landlord to make an application to the State Administrative Tribunal for approval otherwise, it is void and will be read down.
A relocation clause complies with the Act if it contains provisions to the following effect:
- The tenant’s business cannot be required to be relocated unless the landlord has given the tenant at least six months’ written notice (a relocation notice).
- The relocation notice is to give clear details of an alternative retail shop to be made available to the tenant.
- The tenant is to be offered a lease of the alternative shop on the same terms and conditions (or better) as the existing lease. The term of the new lease is to be no shorter than the remainder of the term if the current lease and rent for the alternative shop must not be more than the rent for the existing retail shop. It must be adjusted to take into account any difference in the commercial values of the current retail shop and the alternative shop.
- The landlord is to pay for the tenant’s reasonable cost of the relocation, including but not limited to the cost of the dismantling of the tenant’s fit-out, the cost of re-installing and modifying its fit out, packaging and removal costs and legal costs incurred.
If the landlord does not offer the tenant a new lease of an alternative retail shop, then the landlord is liable to pay reasonable compensation as agreed in writing between the parties or determined by the Tribunal if the parties fail to reach an agreement.
A relocation provision in the lease can cause business interruption to your business. If your lease is not protected by any retail legislation, you should seek legal advice on how to minimise the impact it may have on your tenancy and understand your rights to an alternate premises or termination of your lease if relocating is not a viable option for your business.
For retail leases that fall within the regulatory framework of the retail legislation, the tenant is offered statutory rights that will render any contrary relocation provisions void if the lease attempts to contract out of the tenant’s statute based rights. It is worthwhile to seek legal advice before you enter into negotiations for a lease. If you would like assistance with your lease or get advice before entering into a lease transaction, get in touch with our experience leasing team on 1300 544 755.