What are some major issues to consider for a landlord and tenant in the context of shopping center leases and CC&Rs? Rent, property taxes, maintenance, and repair, are all typically routine matters that are negotiated and resolved at the outset. Oftentimes, the other issues involving a shopping center may come up as the tenant evolves or the mix of businesses in the shopping center changes through time. In this blog, we will explore some common questions and issues that often lead to disputes regarding shopping center leases.
The tenant should see if there is an enforceable exclusivity clause in the lease, easement agreement, or CC&Rs. As discussed in a prior , exclusivity clauses are those that may be used to limit the number or type of tenants that can operate in a development, or in its surrounding area. Tenants who are concerned about competitors coming into the same shopping center to compete and reduce the tenant’s profits may want to enforce this clause. There may be damage or termination provisions that give the tenant the right to terminate its lease or the right to pay lower rent if the landlord breaches such provision.
There are circumstances where landlords may want to enforce the exclusivity clause as well. If the lease is a percentage lease, meaning the tenant pays its base rent and a percentage of monthly sales to the landlord, then the landlord has an incentive to ensure that the tenant maximizes its sales in the shopping center. For example, a landlord may seek to prevent the tenant from cornering the market in the area by opening two or three coffee shops in close proximity to the coffee shop in the shopping center, which may dilute the tenant’s sales in this particular location but boost the coffee shop operator’s overall profits in the geographical area. In such instances, the landlord should look for the Recapture Rights in the agreement, which allow the landlord to terminate the lease and regain possession of the premises in certain instances––such as when the tenant changes its use of the premises.
The parties should look for a go dark clause in the parties’ agreement. Go Dark Clauses may provide that a tenant may stop operating (either completely or during agreed operating hours) without being in default of the lease obligations. A tenant may wish to cease business operations during certain business hours to cut losses. On the other hand, the landlord may want to enforce a continuous operation clause because doing so maximizes traffic flow to the shopping center or is required for a co-tenancy clause. In these scenarios, the parties should also look to recapture clauses to see if the landlord has the right to terminate the lease or declare that the tenant is in default of the lease.
Schorr Law’s attorneys are experienced in handling disputes involving shopping center leases and CC&Rs. Call or email us today to see if you qualify for a free consultation.