It is almost impossible to read a newspaper or publication without seeing an article about the challenges retailers are facing in the age of online shopping, and with good reason. Online shopping presents many challenges and requires a creative approach to ensure continued success for existing and new shopping centers alike.
Fill Empty Space
In the case of an existing shopping center, if a developer wishes to consider alternative uses in order to fill vacant space, the first task will be to analyze all existing documents that impose use restrictions on the property. During your analysis, compile a list of all prohibitive and competitive use restrictions. Use restrictions are generally classified as prohibited use restrictions which are intended to protect a shopping center from uses that are viewed as either unattractive to traditional retail tenants or from uses that, in the eyes of those tenants, place disproportionate parking demands on the center. The other type, competitive use restriction is imposed by retail tenants to preclude competition, and thus may be unfavorable to landlords.
Such language is typically included in a memorandum or notice of lease, but might also appear in the lease document itself. The list should include the verbatim language from each relevant document rather than a summary. A summary of the restriction may not capture the essence of the language. In addition, reciprocal or cross easement documents, which are generally recorded in shopping center transactions, must also be carefully reviewed for these provisions.
Keep Up With Trends and Meet Market Demand
A review of these documents allows a landlord of an existing center with vacant space needs to develop a strategy to address use restrictions that are either onerous or arguably out-of-date. Following this strategy, a redevelopment of the shopping center with a new tenant mix has an increased opportunity to flourish.
Publications in the retail industry contain numerous examples of mixed-use shopping centers that include a broad array of uses which go far beyond what would be considered traditional. For example, health care is not only viewed as an acceptable alternative use but also as a favorable one as the demand for convenient health care rises. Health clubs are also generally viewed much more favorably than they were in the past. Armed with this information, a landlord should develop a strategy to amend leases and the shopping center-wide cross easement documents in order to attempt to liberalize the restrictions and foster creative mixed-use.
Anticipate Future Uses and Allow Flexibility
A developer contemplating a new shopping center has a unique opportunity to anticipate the creative mix of uses when the transaction documents are initially negotiated with the retail tenants. We have found that even the largest big box users will consider broadening the scope of permitted non-retail uses in a shopping center. The list includes urgent care medical practices, dental practices, movie theaters, health clubs, childhood learning centers, large-scale wine stores, and numerous other uses. Lenders also will welcome liberalized use restrictions. The bottom line is that the specific language in any restriction needs to be carefully tailored to provide only the level of protection the retail tenants really require.