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The Modified Anchor Tenant in Enclosed Regional Malls
As traditional department stores and so-called “anchor” tenants in enclosed regional malls are closing stores and limiting their expansion in the marketplace, landlords are seeking alternatives to the traditional department store or anchor store to occupy space in their shopping centers. (“Anchor tenants” can be defined as those selling a wide assortment of goods and occupying more than a certain number (e.g., 50,000) of contiguous square feet of floor area.) These anchor-tenant alternatives — referred to in this article as “Modified Anchor Tenants” or “MATs” — are often defined as follows: A collection of multiple tenants that in the aggregate occupy the lesser of:
- Fifty percent (50%) of the square footage occupied by the former anchor on the first level of the enclosed mall; or
- At least [xxx] square feet of space.
One of the key elements in this definitional term is that the MAT does not need to occupy the same square footage that the anchor tenant was supposed to occupy when the in-line tenants' leases were originally negotiated, nor does this MAT need to consist of only one tenant.
If a tenant has an existing lease that was negotiated with the understanding that a department store or other anchor store was going to be in operation within the mall, replacement of such with a Modified Anchor Tenant creates fundamental problems. After all, anchor tenants frequently lease under more favorable terms because they are the anchor.
The underlying rationale for treating an anchor tenant or a department store differently from other tenants in an enclosed regional mall is that this tenant is deemed to bring traffic to the shopping center and to create a synergy with the in-line tenants, so that shoppers obtain a cross-section of goods during their visit to the enclosed regional mall. For that reason, in-line tenants are often willing to agree that landlords will treat anchors and department stores differently, both in their contributions to operating costs and real estate taxes, and in the rights provided to these types of tenants. However, if a Modified Anchor Tenant does not need to consist of one tenant selling a varied array of goods — which replacement tenancies may or may not attract the same consumer traffic to the shopping center that all parties contemplated — in-line tenants may not be as willing to concede that these MATs should be treated differently when it comes to shared costs and landlord-granted rights.
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