If your business is contained within a shopping centre, or possibly even a standalone business, your lease may contain what are commonly known as relocation and demolition clauses. These clauses give the landlord the right to either relocate you to another premise within the centre (relocation), or terminate your lease if they are going to redevelop the centre (demolition). These clauses can be potentially damaging to your business and the fitout that you have installed in your premises, so it is vitally important to ensure that these clauses are not included in your lease, and if the landlord insists on them being inserted, watering them down so that the risk to your business is decreased. Below are some ways in which you can protect your business from the effect of these clauses.
Protections under the Retail Leases Act for relocation ("the Act")
There are a few key sections contained within the Act that protect business owners from the consequences of relocation clauses. Section 34A of the Act states that a relocation clause cannot be invoked against the tenant unless the following occurs:
- The landlord must give the tenant details of the proposed refurbishment, redevelopment or extension of the centre sufficient enough to indicate a genuine proposal to carry out those works within a reasonable time;
- The landlord must give the tenant at least three months written notice of the relocation. The notice must also specify the alternative premises that is being offered within the centre; and
- The alternative premises being offered to the tenant must be on the same terms and conditions as the existing lease, but with an adjustment of rent taking into account the commercial value of the alternative premises.
Of course, you are not obliged to accept the alternative premises being offered to you. If you are served with a relocation notice, and you do not wish to accept the notice, then you can terminate the lease by giving written notice to the landlord within one month of receiving the relocation notice.
If you do choose to accept the relocation notice, then the landlord will be responsible for payment of the following costs:
- Costs incurred in dismantling fittings, equipment and services;
- Costs incurred in replacing, re-installing or modifying finishes, fittings, equipment or services; and
- Legal costs incurred.
Protections under the Act for demolition
Under section 35 of the Act, a demolition clause contained within a lease cannot be enforced against a tenant unless the following has occurred:
- The landlord has provided the tenant with details of the proposed demolition; and
- The landlord has given the tenant at least six months notice of the demolition.
If you are served with a demolition notice, then you can either wait until the six-month notice period is over, or give the landlord (within the six month period) seven days notice of your termination of the lease.
If your lease is terminated under a demolition clause, then the landlord is liable to pay compensation for the fitout of the shop.
Negotiating with your landlord
If your lease does contain one of these clauses, then it may be worthwhile to see whether your landlord is willing to negotiate the terms of these clauses. Listed below are some examples of what you may wish to negotiate:
- Ask the landlord to be liable for more costs incurred in your relocation. For example, if the value of your fitout will become depreciated because of being relocated, then the landlord may agree to bear this cost;
- If your lease is being terminated because the shopping centre is being demolished or partly redeveloped, then you will have to find a new store, potentially losing the benefits your business obtains because of your location. The landlord may agree to pay you a sum of money for this potential loss of business; and
- So that you can enjoy the benefits of your fitout, amend the lease so that the demolition/relocation clause cannot be activated until late in the term of the lease. For example, if you have a five year term, see if the landlord will agree not to have the relocation/demolition active until the fourth or fifth year of the term.
When you are negotiating your lease with the landlord (or their agent), ensure you keep an eye out for these demolition/relocation clauses. They can have a monumental effect on the productivity of your business, and are starting to become commonplace. While you do have certain protections under the Act, these may not be enough to cover your financial loss if you are forced to relocate of find somewhere else to trade. If this is the case, then it will be worthwhile negotiating these clauses with the landlord in accordance with the suggestions above. It may well cost you money in negotiating with the landlord, but it could prove to save your business thousands of dollars if the clauses are ever invoked against you.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.