Modifications to the Shopping Center: A Tenant's Perspective

Relocation or Replacement of Mall Entrances

Generally, when a tenant is seeking a retail location in a shopping center, one of the key components to the decision is the location of the tenant's proposed premises in relation to the existing mall entrances. Typically, a tenant would want the most direct access to a customer from the customer's entrance into the shopping center to the specific tenant's premises. The ability of the landlord to change a mall entrance, thereby making the customer travel a greater distance and perhaps a more indirect route to reach a tenant's premises, may have a direct and substantial impact on the tenant's sales. It is no coincidence that the most lucrative space is at center court, where all of the entrances and corridors lead to a center location. It stands to reason then, that the altering of a mall entrance (and the corridor space that flows from it) will have a negative impact on the sales of a tenant that no longer has direct access to the customers. As a result, a tenant should specifically negotiate that the landlord will not have the right to change the mall entrances from their present location as of the date that the lease is executed. While a landlord may resist making a broad statement that no mall entrances may be altered, landlords generally are willing to at least acknowledge that the mall entrances located closest to the subject premises will not be changed during the term of the lease.

Vertical and Horizontal Transportation

It has become increasingly common in enclosed regional shopping centers that elevators, escalators, people movers, and other similar mechanical transportation are installed in order to assist customers in traversing the premises. A tenant located at the base of an escalator, for instance, will have a substantial amount of traffic flow from customers passing its front doors; simply, the shopping center's transportation dictates that those customers must pass by the individual tenant's premises. A decision by a landlord to relocate these transportation devices to other locations (or to remove them entirely) will arguably decrease the customer traffic in front of the individual tenant's premises. Further, due to the location of the transportation devices, a tenant may determine a value to be placed on the premises for purposes of calculating its rent. However, once the transportation devices are removed, the rent that has been negotiated is not then renegotiated between the parties. As a result, a tenant should be certain to receive a representation from the landlord that the vertical and horizontal transportation devices that are present at the time that the lease is executed will not be removed, relocated or otherwise altered during the term of the lease.

In addition, a tenant should attempt to gain some assurances from the landlord concerning the continual operation of such transportation devices, and the lease should designate a remedy for a substantial interruption in the operation of the vertical and horizontal transportation devices. For instance, an escalator that is out of service for 9 months out of a year does not represent the same value to the tenant as an operational escalator.

Accessibility and Visibility

While the landlord may retain rights to alter the common areas and the improvements thereon, the tenant should reserve the right to protect visibility of its premises and signage, as well as accessibility to the premises. For example and illustration only, if a landlord decided to place a floor-to-ceiling kiosk directly in front of a tenant's premises, the tenant's signage could not be viewed by the customers on the other side of the kiosk. As a result, a tenant should closely monitor and obtain protection from the landlord in the lease against the placement of kiosks, carts, and retail merchandising units directly in front of the premises for a certain distance. The distance that the landlord will agree to is subject to negotiation; however, of equal importance is the size of the potential structure, the height of the potential structure, and the merchandise that the structure will carry. For instance, a tenant that sells outdoor wear and swim wear may not want a kiosk that sells bikinis opening directly in front of its premises. A careful tenant should consider all aspects of the structures that may be located in the immediate vicinity and what impact those facilities will have on its business.

Parking Spaces

While this may not be an overriding concern in enclosed regional malls, where the city planners tend to ensure that there is sufficient parking available at the shopping center, this is not always the case in strip centers, mixed-use centers and community centers. Very often, inadequate parking results in fewer customers attempting to access the shopping center. A tenant should be certain to establish a certain number of parking spaces that will be available regardless of the landlord's modifications (eg, at least four parking spaces for every 1000 square feet of gross leasable area within the shopping center or approximately 1000 parking spaces in a 250,000 square-foot shopping center). In addition, especially in a strip center, a tenant should try to establish a few parking spaces directly in front of the premises that would be available solely for customers of that tenant. This is especially true in retail centers that have a busy restaurant or other retail user where a landlord may need to agree to redesign the parking facility in order to attract the retail user.

Character of the Shopping Center

As stated earlier, in this era of changing uses for shopping centers, it is increasingly common to find non-retail uses. Examples of these uses are military recruitment facilities, post offices, colleges, and design centers for residential builders. As a result, a tenant should be particularly careful to establish that a certain percentage of the square footage will remain retail in character throughout the term of a lease. By establishing this criterion in advance, a tenant will not be in the position of having to argue that there is an implied covenant to operate a retail facility at the shopping center, or risk a substantial reduction in its sales, if the shopping center becomes decidedly non-retail in character. As landlords attempt to determine new methods to derive more income from their facilities, this question of retail tenants versus non-retail tenants takes on an even greater significance. The remedies that could be arrived at between the landlord and the tenant if the shopping center becomes non-retail in character could be anything from a default under the lease, to a right for the tenant to relocate to another location within the shopping center, to the right of the tenant to terminate the lease, or the right of the tenant to reduce its rental obligation under the lease. This concept is especially important to those retail tenants that rely heavily on traffic generated from other tenants to create their customer base.

While a tenant must recognize a landlord's need to alter the shopping center, a tenant should be very careful not to permit the landlord to have an unfettered right to modify the shopping center, thereby changing the effective business deal between the parties. By focusing on the modification provision in the lease, a tenant can at least attempt to extract assurances from the landlord that certain basic improvements at the shopping center, as well as the basic character of the center, will not be altered during the term of the lease.

In most shopping center leases across the country, there is a provision that relates to the landlord's right to modify, change, add to, subtract from, and/or alter the size, dimensions, character, and construction of the shopping center. Very often, these provisions further grant the landlord the right to change the entrances, the number of parking spaces, the dimensions of hallways and corridors, the number of floors, the placement of kiosks, carts and retail merchandising units in the common areas, the location and arrangement of the common areas, and the merchandising mix of tenants. Generally, this type of a provision is viewed as boilerplate within the lease document and does not receive a great deal of negotiation from tenants.

However, in this era of changing uses for shopping centers, many of which are not even retail in nature, as well as based upon general issues of visibility protection, accessibility protection, and protection from the interruption of traffic flow of customers to a tenant's premises, a tenant would be wise to obtain certain restrictions on the landlord's right to modify the construction and character of the shopping center. While certainly a landlord requires the right to modify the internal construction in order to meet the needs of the tenants, the customers, governmental requirements, and the changing landscape of the retail environment, certain changes to the premises may dramatically impact the tenant's ability to attract customers and generate sales.

At a minimum, a tenant should be concerned with changes to the mall entrances, changes to vertical and horizontal transportation within the shopping center, accessibility and visibility issues, reduction in parking spaces, and changes in the retail character.

Relocation or Replacement of Mall Entrances

Generally, when a tenant is seeking a retail location in a shopping center, one of the key components to the decision is the location of the tenant's proposed premises in relation to the existing mall entrances. Typically, a tenant would want the most direct access to a customer from the customer's entrance into the shopping center to the specific tenant's premises. The ability of the landlord to change a mall entrance, thereby making the customer travel a greater distance and perhaps a more indirect route to reach a tenant's premises, may have a direct and substantial impact on the tenant's sales. It is no coincidence that the most lucrative space is at center court, where all of the entrances and corridors lead to a center location. It stands to reason then, that the altering of a mall entrance (and the corridor space that flows from it) will have a negative impact on the sales of a tenant that no longer has direct access to the customers. As a result, a tenant should specifically negotiate that the landlord will not have the right to change the mall entrances from their present location as of the date that the lease is executed. While a landlord may resist making a broad statement that no mall entrances may be altered, landlords generally are willing to at least acknowledge that the mall entrances located closest to the subject premises will not be changed during the term of the lease.

Vertical and Horizontal Transportation

It has become increasingly common in enclosed regional shopping centers that elevators, escalators, people movers, and other similar mechanical transportation are installed in order to assist customers in traversing the premises. A tenant located at the base of an escalator, for instance, will have a substantial amount of traffic flow from customers passing its front doors; simply, the shopping center's transportation dictates that those customers must pass by the individual tenant's premises. A decision by a landlord to relocate these transportation devices to other locations (or to remove them entirely) will arguably decrease the customer traffic in front of the individual tenant's premises. Further, due to the location of the transportation devices, a tenant may determine a value to be placed on the premises for purposes of calculating its rent. However, once the transportation devices are removed, the rent that has been negotiated is not then renegotiated between the parties. As a result, a tenant should be certain to receive a representation from the landlord that the vertical and horizontal transportation devices that are present at the time that the lease is executed will not be removed, relocated or otherwise altered during the term of the lease.

In addition, a tenant should attempt to gain some assurances from the landlord concerning the continual operation of such transportation devices, and the lease should designate a remedy for a substantial interruption in the operation of the vertical and horizontal transportation devices. For instance, an escalator that is out of service for 9 months out of a year does not represent the same value to the tenant as an operational escalator.

Accessibility and Visibility

While the landlord may retain rights to alter the common areas and the improvements thereon, the tenant should reserve the right to protect visibility of its premises and signage, as well as accessibility to the premises. For example and illustration only, if a landlord decided to place a floor-to-ceiling kiosk directly in front of a tenant's premises, the tenant's signage could not be viewed by the customers on the other side of the kiosk. As a result, a tenant should closely monitor and obtain protection from the landlord in the lease against the placement of kiosks, carts, and retail merchandising units directly in front of the premises for a certain distance. The distance that the landlord will agree to is subject to negotiation; however, of equal importance is the size of the potential structure, the height of the potential structure, and the merchandise that the structure will carry. For instance, a tenant that sells outdoor wear and swim wear may not want a kiosk that sells bikinis opening directly in front of its premises. A careful tenant should consider all aspects of the structures that may be located in the immediate vicinity and what impact those facilities will have on its business.

Parking Spaces

While this may not be an overriding concern in enclosed regional malls, where the city planners tend to ensure that there is sufficient parking available at the shopping center, this is not always the case in strip centers, mixed-use centers and community centers. Very often, inadequate parking results in fewer customers attempting to access the shopping center. A tenant should be certain to establish a certain number of parking spaces that will be available regardless of the landlord's modifications (eg, at least four parking spaces for every 1000 square feet of gross leasable area within the shopping center or approximately 1000 parking spaces in a 250,000 square-foot shopping center). In addition, especially in a strip center, a tenant should try to establish a few parking spaces directly in front of the premises that would be available solely for customers of that tenant. This is especially true in retail centers that have a busy restaurant or other retail user where a landlord may need to agree to redesign the parking facility in order to attract the retail user.

Character of the Shopping Center

As stated earlier, in this era of changing uses for shopping centers, it is increasingly common to find non-retail uses. Examples of these uses are military recruitment facilities, post offices, colleges, and design centers for residential builders. As a result, a tenant should be particularly careful to establish that a certain percentage of the square footage will remain retail in character throughout the term of a lease. By establishing this criterion in advance, a tenant will not be in the position of having to argue that there is an implied covenant to operate a retail facility at the shopping center, or risk a substantial reduction in its sales, if the shopping center becomes decidedly non-retail in character. As landlords attempt to determine new methods to derive more income from their facilities, this question of retail tenants versus non-retail tenants takes on an even greater significance. The remedies that could be arrived at between the landlord and the tenant if the shopping center becomes non-retail in character could be anything from a default under the lease, to a right for the tenant to relocate to another location within the shopping center, to the right of the tenant to terminate the lease, or the right of the tenant to reduce its rental obligation under the lease. This concept is especially important to those retail tenants that rely heavily on traffic generated from other tenants to create their customer base.

While a tenant must recognize a landlord's need to alter the shopping center, a tenant should be very careful not to permit the landlord to have an unfettered right to modify the shopping center, thereby changing the effective business deal between the parties. By focusing on the modification provision in the lease, a tenant can at least attempt to extract assurances from the landlord that certain basic improvements at the shopping center, as well as the basic character of the center, will not be altered during the term of the lease.