Malls · Retail leases · Shopping Center · Uncategorized

Why should you care about the definition of the “Shopping Center” in the lease?

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This past week, we were working on a sizable shopping center acquisition in the Southeast. Part of the center had been a mall that was “de-malled,” while the balance was developed in two additional phases. The original mall became a series of big boxes, some traditional small shop retail, a few restaurants and a bit of service type retail now often found in shopping centers (dental, doc-in-in-a-box and the like). The second phase added a discount department store and some other big boxes, and the third phase added a supermarket and small shop retail. More recently, some big box space was converted to a nice health club, a theater was added and a group personal training facility lease had been executed.

We knew “shopping center” was going to be an issue for this acquisition. We just did not realize how much. Many of the leases defined shopping center as “(Name) shopping center as reflected on the Exhibit A site plan.” Others defined the center as Phase II or Phase III, or Phase II and III. Other defined the center as “(Name) shopping center as described on Exhibit A,” with Exhibit A being a two page metes and bounds description. There were about 10 different iterations of the term “shopping center.”

Why would that matter? Because some lease prohibited health clubs or theaters. Others granted exclusives in the shopping center defined in their lease. While yet others extended the exclusives and restrictions to adjacent parcels controlled by the landlord or its affiliates. This mish-mosh of definitions caused our client to wisely have the seller seek waivers on certain existing uses prior to closing, and created the need for an almost Venn diagram type site plan for what can go where. Without the waivers, without a clear picture of restrictions and exclusives, a new owner could have some exposure.

There are other financial implications of the definition of shopping center that we will hit in a future blog, particularly as it relates to whether a particular space is included in the definition of the shopping center and then defined as an excluded area, or whether it is excluded from the definition of the shopping center to begin with. But, be clear about how you define the shopping center in your leases!

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