Relocation clause in retail lease: what tenants need to know

Most retail tenants sign leases assuming they will trade from the same premises for the full term. But demolition and relocation clauses give landlords the right to move or terminate your lease early. These clauses are common in shopping centres and can appear in strip retail leases too. Understanding how they work and what protections you have is critical before you sign.

What is a relocation clause in a retail lease?

A relocation clause allows the landlord to require you to move to another premises within the same centre or precinct. The landlord must give written notice, usually 6 to 12 months in advance, and the new premises must be of a similar size, location and standard. The clause will specify who pays for the move, how rent is adjusted, and what happens if you refuse.

In practice, relocation clauses are most often used when a landlord wants to reconfigure a centre, add a major tenant, or redevelop part of the site. They are less common in strip retail, but some landlords include them to allow for future development.

What is a demolition clause?

A demolition clause gives the landlord the right to terminate your lease if they intend to demolish the building or a substantial part of it. The landlord must give written notice, usually 6 to 12 months in advance, and must genuinely intend to carry out the demolition. The clause will specify whether you receive compensation and how much notice you get.

Demolition clauses are more common in older centres or strip retail where the landlord may want to redevelop the site. Unlike relocation clauses, demolition clauses end the lease entirely, so you will need to find new premises or close your business.

What does the Retail Leases Act 2003 (Vic) say?

The Retail Leases Act 2003 (Vic) provides some protections for tenants, but it does not ban relocation or demolition clauses. Under the Act:

• The landlord must give you at least 6 months’ written notice of relocation or demolition.
• If you are relocated, the new premises must be of a similar size, location and standard to your current premises.
• If the landlord terminates the lease for demolition, they must compensate you for your fit-out and relocation costs, unless the lease says otherwise.
• The landlord must genuinely intend to carry out the relocation or demolition. If they do not, you may have a claim for compensation or to remain in the premises.

If you think the landlord is not acting in good faith, you should get advice from your solicitor. Elite Retail Leasing provides commercial leasing consultancy, not legal services, so we always recommend tenants seek legal advice on their specific situation.

How to negotiate fair relocation terms

Relocation clauses are negotiable, and tenants often secure better terms than the landlord’s first offer. Here are the key areas to focus on:

Notice period

The minimum notice period under the Retail Leases Act is 6 months, but you should push for 12 months. This gives you more time to plan the move, market your new location, and minimise disruption to your business.

Costs of relocation

The lease should specify who pays for the move. Ideally, the landlord should cover all costs, including:

• Removalists and storage
• Reinstallation of your fit-out
• Signage and wayfinding updates
• Marketing to notify customers of your new location
• Any rent-free period to cover downtime during the move

If the landlord refuses to cover all costs, negotiate a fixed contribution or a cap on your expenses.

New premises standards

The lease should guarantee that the new premises are of a similar size, location and standard. Avoid vague terms like “reasonable” or “comparable” – insist on specific measurements and a location that is no less favourable than your current one. For example, if you are currently near the entrance, the new premises should not be at the back of the centre.

Rent adjustment

The rent for the new premises should not be higher than your current rent, unless the new premises are larger or in a better location. If the new premises are smaller, the rent should be reduced proportionally. The lease should specify how the new rent is calculated to avoid disputes later.

Right to terminate

If the landlord cannot offer suitable alternative premises, you should have the right to terminate the lease without penalty. This protects you if the landlord’s proposed relocation is not viable for your business.

How to negotiate fair demolition terms

Demolition clauses are harder to negotiate than relocation clauses, but you can still improve the terms. Focus on these areas:

Compensation

The landlord should compensate you for:

• The unamortised cost of your fit-out (the value of your fit-out that has not yet been depreciated)
• Relocation costs, including removalists, storage, and reinstallation
• Loss of profit during the downtime caused by the move
• Any costs associated with finding new premises, such as lease break fees or higher rent elsewhere

The lease should specify how compensation is calculated and when it is paid. Avoid clauses that leave compensation to the landlord’s discretion.

Notice period

As with relocation clauses, push for 12 months’ notice instead of the minimum 6 months. This gives you more time to find new premises and wind down your business if necessary.

Proof of demolition

The landlord should provide evidence that they genuinely intend to demolish the building, such as development approvals or contracts with builders. If they cannot provide this, you may have grounds to challenge the termination.

What to do if you receive a relocation or demolition notice

If you receive a notice from your landlord, follow these steps:

1. Review the notice carefully. Check the date, the proposed new premises (if applicable), and the compensation offered. Compare it to the terms in your lease.
2. Get advice. Contact your solicitor and a retail leasing consultant to review the notice and your options. Elite Retail Leasing can help you assess whether the landlord’s proposal is fair and negotiate on your behalf.
3. Inspect the new premises. If you are being relocated, visit the proposed new premises and compare it to your current location. Check the size, foot traffic, visibility, and proximity to complementary businesses.
4. Negotiate. If the terms are not favourable, negotiate with the landlord. Focus on the areas outlined above, such as notice period, costs, and compensation.
5. Plan your move. If you accept the relocation, start planning the move as soon as possible. Notify your customers, update your marketing materials, and coordinate with the landlord on the handover of the new premises.
6. Consider your options. If the landlord’s proposal is not viable, you may need to find new premises, negotiate a lease break, or challenge the notice in VCAT. Your solicitor can advise you on the best course of action.

Demolition and relocation clauses can be disruptive, but with the right preparation and negotiation, you can protect your business and minimise the impact.

Frequently asked questions

Talk to a Melbourne retail leasing consultant

Elite Retail Leasing acts for retail tenants across Australia on new sites, renewals, lease negotiations, surrenders and expansion planning. If any of the above applies to your business, get in touch.

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