Expert: Jim Avancena, CPM - 1/11/2011

Question
QUESTION: We a nonprofit organization located in California.  We signed a 5 year commercial lease in 2007.  The office next door wants to expand into our space.  Today, January 10,2011 we received a letter from the building owner telling us that we must move into another space that is available in our building per the lease agreement.  The issue is that our nonprofit organization's grant has expired and we are operating on the modest amount of money we have reserved.  We do not know if we will get another grant.  We found a tenant in the bldg. who is willing to let us take over his smaller space for less money.  Is there anything we do to avoid the forced move to the large suite and instead transfer to a smaller space with the bldg.?  Any negotiation tactics?  After all, our office will not be left empty since the business next door will be using our space.  The applicable paragraph states:

"Lessor also reserves the right to move Lessee to other space of comparable size in the Building or Project.  Lessor must provide at least 45 days prior written notice of such move, and the new space must contain improvements of comparable qulity to those contained within the Premises.  Lessor shall pay the reasonable out of pocket costs that Lesee incurs with regard to such relocation, including the expenses of moving and necessary stationary revision costs.  In no event, however, shall Lessor be required to pay an amount in excess of two months Base Rent.  Lessee may not be relocated more than once during the term of this Lease".

Many thanks for your help!

Debbie

ANSWER: Debbie:

There is likely little that you can do aside from simply asking the landlord if it would allow you to do what you have indicated in your question.   The landlord has the right to move you regardless of what you would like to do, provided it follows the conditions indicated in the "relocation clause" provision that you included in your question.  But the relocation clause is ambiguous, vague and poorly written.

The relocation provision contains terms that COULD BE, but not necessarily are, in conflict with each other.  For example, the provision states that the improvements in the new space must be of "comparable quality" to the improvements in your current suite.  Look carefully at the suite your landlord wants to move you to and compare every single type of material used and the quality of each finish; that is,
1.) Compare the CARPET(material: nylon or natural fiber, same "weight", is the carpet in the new suite worn? is it dirty and full of stains? etc., etc.  
2.) WALL COVERINGS(paint vs. wall paper?),
3.) DRAPES and BLINDS?  Are they equal quality?
4.) LIGHTING FIXTURES ( more or less number of fixtures{it should have light of equal lumens throughout - not darker), and are the fixtures installed in the ceilings of each suite equivalent or better quality in one suite and lower quality in your new space},
4.) Are the quality of the DOORS equivalent(solid core vs. hollow core?), if the walls are painted, is the paint job obviously of better quality in your current space than the paint job in the new suite?        
5.) Was the new suite built with the same thickness wall board?  Do your current walls contain insulation and use thicker wall board making your current suite much quieter if the new suite does not have the same wallboard thickness and/or insulation (not many suites have walls with insulation in the walls).
6.) Does you current conference room have glass or clear plastic panels in some portions of the conference room walls and the new conference room not have any glass or plastic panels?
7.) Is the ceiling tile in your current suite better quality than the ceiling tile installed in the ceiling of the new suite?

Etc., Etc., you get the idea. You will likely need to find someone that knows a lot about building materials and construction to help you make these comparisons.

If the new suite does not have similar improvements, you need to send written correspondence to your landlord IMMEDIATELY detailing each of the finish items that are of a lesser quality in the new premises, and demand (in writing) that the landlord make the changes required to make the improvements in the new space of "comparable quality".   The idea is that if you can make a detailed case that the landlord has to make expensive upgrades to the new space before you are required to move in, the landlord may be more flexible with you regarding your requested other leasing plans.   

You landlord is going to argue that every single item of finish in the new suite is "comparable" quality even if that is not accurate, or the landlord will have to spend its own funds to upgrade the finishes that are not a high quality.

This is where the relocation provision conflicts with itself.  What happens if the improvement work required to make the new suite of "comparable quality" amount to more than "two months base rent"?   Your lease doesn't say what happens in that situation.   Your firm doesn't have to pay the additional costs.  So the landlord will have to pay more than the equivalent of two months of base rent because you don't have to move into new space that has improvements that are not of "comparable quality".   

The landlord may wish to negotiate with your firm if excess costs are determined to be required.

Also, be sure to note that the relocation provision specifies that the new space must be of "comparable size".  If you can make a reasonable argument that the new space is slightly larger and has more square feet, you may be able to make an argument that the new space in not "comparable size" in your definition because the funds available to a non-profit firm are limited.  Note however that the landlord may wish to simply lower your rental rate so that it becomes equal to what you would have paid at your current suite.

If the new space is smaller sized, consider carefully if the smaller space if sufficient to provide the offices, storage areas, conference room, reception room, etc. that are MINIMALLY necessary for your non-profit firm to operate effectively.   

Finally, the landlord will also do everything possible to minimize the amount of your "Out-of Pocket" expenses in order to keep those costs as low as possible.   New and equivalent quantity and quality stationary can be costly - and the landlord must supply you the new stationary.  The landlord must also pay the costs to relocate everything in your office, and pay you for anything that is broken or stolen during the process.

The point is, your landlord is going to do everything possible to make its costs as small as possible.   Your firm should do everything possible to attain everything your lease relocation provision specifies.   Your firm does not have to accept less than you have now in your current suite.

Do not be shy, be fair, but be firm until you get what is fair.  Your landlord will threaten you with a law suit to evict you from your current space.  If the new premises are not "comparable quality" and the landlord's arrangements for out-of-pocket-costs and moving arrangements are not "reasonably" sufficient, DON'T MOVE.   If the landlord is being unreasonable based on the terms of your relocation provision and you refuse to move, the landlord will likely force you to go to landlord/tenant court and defend your reasons for not moving to a judge.   If you are being REASONABLE, the judge will very likely support your firm 100% regarding this particular matter.

Many aspects of the words in the relocation clause of your lease can be defined in many, many ways subject to a wide range of leasing practices.   I am not an attorney, and cannot give legal advice, so you should go over any of the arrangements regarding the new space, out-of-pocket-costs etc. with a knowledgeable local "Landlord/Tenant" lawyer before proceeding toward a dispute with your landlord.  

I hope this information is helpful, but you must take action IMMEDIATELY if you intend to challenge your landlord, and you must proceed with caution.

Send me a follow-up question if I can assist you further.

Good luck,

- Jim

---------- FOLLOW-UP ----------

QUESTION: Thank you for your excellent reply.  As an afterthought, we had very heavy rains in Los Angeles and the new space is on the top floor.  There were leaks in the hallway celing adjacent to the space but not inside the space itself.  Would it be unreasonable for us to ask for an inspection to insure that there is no mold or fungus in the office?

Answer
Debbie:

Wow! You learn fast!  I am impressed.

Mold and hazardous materials are a very fast growing concern to property owners and have become a major source of commercial property losses.  Landlords have started including provisions in their leases that attempt to make the TENANT liable for expense regarding mold.   Be certain that your next lease includes a provision that requires the landlord to warrant that the demised premises is free of mold and all latent defects as of the lease commencement date, especially if the landlord's lease is making you liable for damages, mold and hazardous materials in the premises thereafter.     

Would it be unreasonable to ask for an inspection?  No. Include your justification for the inspection in the request.  Do you have any idea where you can locate the previous tenant that was in the space you are being directed to occupy?   Often the Post Office will be able to give you the prior tenant's current address.   Ask the former tenant if they have any concerns regarding the premises - especially if the space had any moisture problems.

Bravo.

Good luck.

-Jim