09.17.2014

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Updates

The holiday shopping season is fast approaching and for the brick and mortar retail industry, it is a critical time. Whether you are a landlord of a shopping center, a long-term retail tenant, or a temporary seasonal tenant, there are several leasing issues that arise during the holidays that are worth noting. Before the holiday rush is in full swing, here is a list of some common areas of concern and questions for you to check at least once, if not twice:

Hours

Can tenants choose to, or be forced to, forego turkey dinner and open on “Gray Thursday”?

Landlords and tenants should review their leases to see how they address tenants’ rights—or obligations—to stay open past normal business hours or to open on additional days, including holidays. If tenants choose to stay open for additional hours or open on additional days, they may (or may not) be responsible for additional expenses. They also may (or may not) need to provide the landlord with advance notice or obtain the landlord’s consent.

Short-Term Seasonal Uses

Is that ornament kiosk going to be a bigger problem than it’s worth?

Landlords should check existing documents, such as reciprocal easement agreements and leases, as well as local ordinances and regulations, to see if there are restrictions to the use of any portion of the retail property for short-term purposes.

For example, some tenant leases provide that a kiosk or retail cart cannot be placed in front of their premises. Furthermore, a temporary tenant’s use could violate an exclusive use prohibition or other lease provision. In addition, landlords should also consider how short-term arrangements affect common area cost recoveries (e.g., space leased to short-term tenants may (or may not) be included to calculate a tenant's proportionate share of common area expenses and taxes), the image of the property, and the signage and design elements that will work best for the property.

With that said, there are also potential benefits to seasonal short-term arrangements that landlords should consider. For example, such arrangements may (or may not) be considered as occupied space for the purpose of co-tenancy provisions.

Employee Parking

What do you do when your parking lot is already packed and now you have seasonal employees in the mix?

Tenants and their landlords should know the landlords’ rights to control where personnel park, and tenants should make sure they understand their obligations to inform employees about parking restrictions and to monitor compliance. Tenants should also be aware that their leases may have penalties for failure to follow parking rules and restrictions.

Valet Parking

What else can you do about your jammed parking lot?

Landlords may want to consider valet parking as an option to alleviate holiday parking lot congestion. Landlords should review pertinent leases, reciprocal easement agreements, as well as local ordinances and regulations, to determine whether valet parking is a viable option, and whether there are any additional related restrictions, such as a prohibition on the ability to cordon off parking areas.

If valet parking is allowed, landlords should consider whether the costs of a valet parking service can be included in common area cost recoveries. Landlords should also consider the benefits of allowing a tenant or tenants, such as restaurants for example, to operate valet parking through a license agreement.

Signage, Decorations and Promotional Materials

Can your tenant really decorate its window with spray snow and blinking holiday lights?

Landlords and tenants should be aware of how leases address a tenant’s right to install, and the landlord’s right to approve, signs and decorations, even if they are temporary, on storefronts and in windows.

Landlords and tenants should also check for landlord approval rights and requirements for holiday promotional materials. For example, the landlord may have the right to object to any promotional materials, signage or decorations based on religious grounds. In addition to avoiding disputes, understanding the applicable lease provisions can help tenants avoid incurring costs for signage, decorations, displays or promotional materials not permitted by the lease.

Activities Outside the Premises

Can the local school choir sing carols outside of your store?

During holiday time, many tenants want to display merchandise, distribute promotional materials, have employees greet customers, or play music outside their premises. Landlords and tenants should review leases and the governing rules and regulations to see if the landlord can prohibit or restrict these activities. Whether or not there is a prohibition, landlords should also consider how they will balance the desires of competing tenant requests.

Third-Party Activities Inside the Premises

Can the high school basketball team hold a giftwrap fundraiser in your premises?

Most leases prohibit the use of premises by anyone other than the tenant and its employees, even if the use is temporary and without charge. Such activities might also violate exclusive use provisions of existing tenants' leases. Tenants and landlords should be mindful of any restrictions, consents and other requirements applicable to the use of premises by third parties, even charitable organizations on a temporary basis.

Construction

Will you be able to complete your build-out in December?

For those tenants coming late to the holiday party or for landlords with projects not yet completed, other tenant leases and reciprocal easement agreements may prohibit or restrict starting or continuing construction during the holidays in order to avoid disruptions to shoppers. Landlords should be aware of such provisions well in advance.

Common Area Maintenance Costs

Do you really have to subsidize the cost of Santa and his elves?

As a result of increased shopping activities and additional operating days and hours, landlords may have to hire additional personnel to regulate traffic and provide additional security. You may wonder if this cost can be passed on to tenants. In addition, to distinguish their properties from competing locations, landlords add special attractions and events like holiday displays, a Santa for the kids, strolling musicians and concerts. Landlords and tenants should be familiar with how leases address landlords’ ability to pass through the cost of holiday promotional efforts to their tenants.

Group Advertising

Can you bill your tenants for a holiday advertising campaign that doesn’t specifically feature them?

Landlords may conduct group advertising campaigns to promote the shopping center generally, perhaps with a list of tenants, but with no particular tenant or tenants featured. Landlords and tenants should understand what rights landlords have under their leases to undertake and charge tenants for such group marketing efforts. Also, tenants should know if such expenditures can be applied against any advertising requirements in their leases.

Keep the Shopping Season Merry

The rights, obligations and restrictions mentioned above will be found in provisions scattered throughout the lease; moreover, some may not be in the lease at all, but in the landlord’s rules and regulations, in reciprocal easement agreements or similar documents, or even addressed in local ordinances and regulations.

To reduce the possibility of misunderstandings and disputes, landlords and tenants should review all of these documents to make sure that planned holiday operations, promotions and marketing efforts are compliant. Tenants will also want to ensure that they have ample time to obtain any required consents or approvals for signage, displays, promotional materials and the like. Anticipating and preparing for potential leasing issues in advance will help avoid unnecessary hassles and keep your holiday shopping season merry and bright!

© 2014 Perkins Coie LLP


 

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