When purchasing or ground leasing an outlot in a shopping center, special attention must be given to the layout, location, and function of utility, drainage, water and sewer lines and facilities serving the outlot (for the sake of brevity, these service lines and facilities are referred to collectively as “utility lines”) to ensure that the outlot has been granted the proper rights to install, maintain, or use those utility lines. Often the development of an outlot involves tapping into existing/ primary utility lines or facilities serving the shopping center as a whole, or installing dedicated utility lines from the outlot to the street across intervening portions of the shopping center. Any time a utility line serving an outlot traverses other property, whether other areas of the shopping center or adjacent third party property, easements must be in place (or created) in or over that other property for the benefit of the outlot.
This fundamental legal requirement is often overlooked or lost in the details of other legal documents governing the shopping center. It is not uncommon for a shopping center developer to be obligated under the purchase contract (or ground lease) to physically install utility service lines to the new building (or stubbed to the boundary line of the outlot), but with no corresponding grant of easement rights to the outlot for the use of those portions of the utility lines that traverse other portions of the shopping center. It is also not uncommon for shopping center reciprocal easement agreements (REAs) or declarations of covenants, conditions and restrictions (CCRs) to include generalized provisions creating cross or reciprocal easements, but that, on closer inspection, do not actually create the easements required by the outlot.
A few particular, and somewhat common, problems to watch out for are as follows:
Imperfect REA or CCR Easements
It is important to analyze the REA or CCR document carefully with respect to utility easements. It is easy to assume that the shopping center developer and its attorneys have crafted the legal documents to account for and provide all of the easements required for all of the properties in the shopping center, but in practice this is not always the case. Often the REA or CCR is created contemporaneously with the creation of the original development plan and the easement provisions therein are crafted to work for that original plan. But, development plans are organic and often change with evolving circumstances (e.g. lot reconfigurations to accommodate particular purchasers or tenants; modifications required governmental planning review boards or conditions of entitlements, etc.). The original REA or CCR does not always evolve with the evolution of the project, resulting in original easements being out of sync with the modified development plan.
Some developers recognize the organic nature of the development plan and omit shopping center easements altogether from the REA or CCR, preferring instead to grant separate easements to individual outlots as needed. In those case, the outlot developer and its counsel must ensure that separate easement documents are created for the utility lines serving the outlot.
Common Shopping Center Utility Lines
Sometimes development plans and corresponding REAs or CCRs contemplate the installation of common utility lines or facilities in one location (e.g. a storm water detention area, or a sewage treatment plan) or in a few selected locations (e.g., electrical, water, or storm sewer lines) and grant all of the lots within the development the right to tie into and use those common facilities. If, however, the common utility lines do not run to or through the outlot, additional easement rights must often be created for the installation of the lateral line across intervening property to connect the outlot to the common utility line or facility.
Common Storm Water Detention Facilities
Common storm water detention facilities raise other special considerations. In addition to ensuring that the outlot has rights to install a connecting drainage line to the common detention area (or to tie into an existing common conduit line running outside of the boundaries of the outlot), the outlot developer must analyze the capacity of the detention facility to ensure that it has sufficient capacity to handle the flows expected to be generated by the outlot (when combined with the flows expected to be generated by the shopping center as a whole), once the center is fully constructed, as well as the size of the common conduit lines to ensure that they also have sufficient capacity to handle flows from the whole center.
In addition, even when the storm water facilities are sufficient for the shopping center as designed, the outlot owner should be cognizant of possible future changes to the center that could alter and expand the volume of storm water flows into the system (e.g. expansion of the shopping center; grant of drainage easements to adjacent property owners, etc.). The outlot developer will want to ensure that the REA, CCRs, or other easement instruments contain provisions to either prohibit the grant of further rights in the storm water detention facilities to additional properties, or restrict such rights to circumstances where the additional flows would not over capacitate the facility. If the outlot owner or tenant has sufficient bargaining strength, it might also include an obligation of the developer to install (or pay for the cost of) special on-site underground detention facilities within the outlot if the common shopping center detention facility becomes over capacitated.
A further consideration must be given to the underlying rights of the common shopping center detention facilities in or on adjacent third party properties. If the detention area is located on (or partially on) an adjacent property, or if the detention area is within the shopping center tract but channels outflow onto an adjacent property (either raw flow, or outlet pipes that channel the flow across the adjacent property to a wetland on the adjacent property or to a public storm sewer on or adjacent to the adjacent property), the outlot owner should be attentive to ensure that the shopping center developer has obtained the necessary rights to utilize the adjacent property for these purposes.
As reflected above, outlot utilities are usually dependent on legal property rights that are every bit as important to the outlot as access, parking, or other rights in the adjacent shopping center land that are crucial to the development and use of the outlot. Accordingly, the outlot owner and developer should have competent legal counsel analyze the underlying legal documents that create (or purport to create) these critical easement rights to ensure that all of these rights are in place, or are put in place, prior to and as a condition of, closing on the purchase, or taking possession under a ground lease, of the outlot property.