By Sarah Merkel, VP and Associate General Counsel & Justine Collins, Legal Research Manager
The Shopping Center industry is evolving. Retailers are being joined by different types of uses such as entertainment/amusement, health clubs, medical offices, educational facilities, and restaurants within shopping center properties. Additionally, shopping center owners are trying to maximize value by developing more outparcels, often with the intent to subdivide and sell them at more competitive cap rates. Owners are also working with tenants to incorporate exterior elements that provide convenience to their customers, such as drive-thrus online order pickup stations, and electric vehicle charging stations.
As a result of all of these changes, leasing transactions have become more complex, often requiring significant legal research on the front end. Retail leases with national tenants and reciprocal easement agreements with adjacent landowners usually contain restrictions or limitations on non-retail uses, prohibitions on parking-intensive uses such as restaurants and health clubs, and restrictions on changes that can be made to the common area. It is imperative to identify all restrictions that apply to a proposed leasing transaction (including any associated development or changes to the common area that will be completed) in order to eliminate the risk of violating such restrictions. Once the restrictions are identified, DLC’s legal team works hand in hand with our leasing team to request waivers or consents from the parties whose leases or reciprocal easement agreements contain the restrictions.
As a result of all of these changes, leasing transactions have become more complex and often require significant legal research on the front end.
Trampoline and Adventure Parks
Over the last year, the number of research requests we’ve received regarding trampoline and adventure parks has skyrocketed. Fulfilling an increasing demand by consumers for family entertainment, such facilities can go far beyond jumping to incorporate ninja and ropes courses, go-carts, bowling, dodgeball, laser tag, mini golf, arcades, even indoor roller coasters, and sky-diving – not to mention restaurants and merchandise sales. Adventure parks are appealing to Landlords not only for their success and popularity but also for their ability to fill large boxes. Aero Trampoline Park, located in DLC’s Putnam Place Shopping Center in Hamden, CT, occupies space previously used as a supermarket. However, adventure parks, as well as fitness clubs (similarly dominant in today’s shopping centers), can be subject to specific restrictions on entertainment/recreation, fitness, bowling, or arcade uses, and/or general restrictions on non-retail use. Such restrictions may be in place in an effort to, respectively, allay parking concerns and maintain a retail character within the shopping center. If an adventure park or fitness center will incorporate a restaurant or sell merchandise, other tenants’ exclusive uses might also apply. If restrictions apply, waivers of the restrictions can often be obtained from the other tenant(s).
Medical and Educational Facilities
Shopping centers are also trending toward such non-retail uses as medical offices and educational facilities. Next to Aero Trampoline Park at Putnam Place, Porter and Chester Institute opened a 47,000 square foot campus of its technical school to accommodate six hundred students. Urgent care, plasma, and dialysis providers are becoming particularly prevalent in DLC’s shopping centers, such as AFC Urgent Care at Levittown Town Center in Levittown, PA and U.S. Renal Care at Whiterock Marketplace in Dallas, TX. Daycare facilities, such as Brightside Academy at DLC’s Northern Lights Shopping Center in Columbus, OH, are also common. In rare cases, a lease will specifically prohibit medical offices, and more rarely schools, but restrictions on non-retail businesses arise regularly in our research. Often such a restriction includes exceptions for certain types of non-retail (such as medical offices) or an allowance for up to a certain amount of non-retail use in the shopping center, so we can approve the use without the need for consent.
Along with easy access to medical, educational, and entertainment facilities, consumers are increasingly demanding convenience within their shopping centers, including drive-thrus, online order pick-up services, and electric vehicle charging stations. Although the landlord often has the right to allow such changes, before providing approval, we must review whether such components would conflict with the landlord’s obligations under other leases and agreements, such as protecting another tenant’s no-build or no-change area or critical accessways. Reserving certain parking spaces in the common area for a tenant’s online order pick up service might violate a lease that requires the landlord to provide parking on an unreserved basis or to maintain parking ratios. Any change within the common area – from minor alterations to developing a new outparcel – might be subject to restrictions regarding the timing, location, or performance of construction; impact to drive-lanes, curb cuts, ingress/egress, or parking; and, most commonly, effect on visibility and accessibility of tenants’ premises.
The need for thorough and accurate research into possible restrictions adds an additional layer of complexity to and can slow down a transaction. In order to mitigate such a slowdown, DLC has created a legal research team, which works expeditiously to conduct full property research when there is a proposed non-traditional use or when there are proposed changes to the common area of a property. The research team often works with the leasing team during the LOI negotiation stage to identify all applicable restrictions so that the parties know early on what hurdles exist and what waivers or consents will need to be obtained. Performing legal research on the front end usually results in a smoother lease negotiation. We hope that facilitating the acceptance of non-traditional tenants into the retail environment contributes to the vibrancy and freshness of DLC’s shopping centers, and ultimately to the #success of DLC, our tenants, and their customers.