Retail property owners and retailers alike are always looking for ways to increase their revenues in a cost-effective manner, especially during the holiday season when a large percentage of a retailer's profits are typically earned.  Given that owners are still faced with vacancies in their properties (albeit less so than in the past several years), now is the time for retail property owners and retailers to look into possible short-term win-win situations for both parties by entering into short-term holiday arrangements for retailers to utilize vacant space.  In addition, retail property owners and retailers should look at their existing leases to see how certain key provisions may impact their holiday season.  This Update will provide suggestions related to each of these topics.

Short-Term Leases

With respect to short-term (or specialty or temporary) agreements, the parties should consider the following:

  • Restrictions:  Do any existing documents, such as reciprocal easement agreements or leases, or local laws restrict 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.

  • Operating Expenses:  What is the impact of converting non-income-generating space to income-generating space, even on a short-term basis?  Some tenant leases exclude short-term leases from the definition of space used to calculate a tenant's proportionate share, while others may include this space.  This could affect reimbursement amounts for common area expenses.

  • Co-tenancy:  What is the impact of a short-term occupancy on the co-tenancy provisions in existing tenant leases that create tenant rights if a certain minimum percentage of the retail space is not leased?  Some co-tenancy clauses specifically provide that short-term tenants will not be considered as part of the in-line tenancy requirements, while others state the opposite or are silent.

  • Image:  Will short-term arrangements affect the image of the property?  What type of signage will be required?

  • Permitted Use:  Will the temporary uses be permitted under the other leases, reciprocal easement agreements and property rules?

  • Utilities:  Is access to necessary utilities readily available?

  • Parking:  Is there adequate parking to allow use of some parking spaces for seasonal purposes?

Existing Leases

With respect to existing leases, there are important lease provisions to review when contemplating the upcoming holiday season.  If your lease contains provisions that do not match your needs, now is the time to approach the other party so that there are no challenges to maximizing holiday revenues for all.  Some provisions to review are:

  • Hours:  Are tenants obligated to stay open for the longer hours that many retail property owners desire?  Conversely, can a tenant elect to stay open longer hours without being charged for additional expenses?

  • Employee Parking:  Where will seasonal workers be required to park?  Can a landlord require employees to park in restricted areas, perhaps even offsite?  Leases should be reviewed as to each party’s rights and obligations to monitor and enforce compliance.

  • Signage and Decorations:  What does the lease say about the tenant’s right to install, and the landlord’s right to approve, signs and decorations on storefronts and in windows, even if only temporary?  Are the signage and decorations sensitive to all religions?  Can a landlord or tenant object to any signage or decorations based on religious grounds?

  • Activities Outside the Premises:  At holiday time, many tenants are tempted to display merchandise, distribute promotional materials, have employees greet customers or play music outside their premises.  Does the landlord have the right to limit this activity?  Sometimes the rules and regulations governing the property, rather than the lease itself, prohibit this type of activity.  Whether or not there is a prohibition, how will the landlord balance the desires of competing requests from tenants?

  • Construction:  Can the landlord prohibit any construction during the holiday season so as to minimize disruptions to shoppers?

  • Common Area Maintenance Costs:  Are the costs associated with longer operating hours, increased security and personnel, holiday decorations, Santa appearances, and entertainment all a part of common area maintenance costs as defined in the various leases?

  • Group Advertising:  Are the costs of advertising campaigns used to promote visits to the property during the holiday season a cost that can be passed on to the tenants? 

Now is the time for all parties to think about creative ways to maximize revenues and to review their relevant documents to identify their rights and obligations before the cheer of the holiday time is upon us.

© 2012 Perkins Coie LLP