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Thinking Outside of the Big-Box: Understanding License Agreements
There is no denying that online shopping and changes in consumer spending habits have had a profound impact on brick-and-mortar shopping centers. Rapid advances in technology have changed how and where consumers shop, how they spend their money, and how they spend their time. The impact is evident to anyone who has visited a shopping mall in the last couple of years. For the past half-century, retail giants have been steadfast anchor tenants, driving foot traffic and sales at shopping centers. Amid the current so-called retail apocalypse, an unprecedented number of classic anchor tenants are now gating their big-box entrances and going dark. More than 20 retail chains have filed for bankruptcy in recent times, and others are liquidating, falling like dominoes.
Although permanent anchor and inline tenants are the backbone of a successful shopping center and are critical to a property's stability and ability to attract and retain institutional investors, versatility and flexibility are becoming more and more important. The International Conference of Shopping Centers (ICSC) has recently published a comprehensive analysis of the current retail environment in a report titled, “Envision 2020.” The ICSC distills various innovative themes in this report that are guiding retail real estate to a brighter future. One critical component to the successful evolution of a shopping center is creating a stronger connection with community through attractions, events and promotions that bring a fresh vibrancy to the centers. Many shopping centers are hosting community events, such as concerts, art shows or other performances, and forming partnerships with community organizations featuring activities such as yoga classes, health fairs or traveling expositions. These specialty relationships and other short-term relationships are generally memorialized in a license agreement rather than a traditional lease.
License Agreements Help Achieve Versatility
License agreements are typically used for shared-space, shorter term arrangements or temporary occupancy. They are commonly used for kiosks, carts or RMUs (retail merchandising units), seasonal promotions, pop-up leasing and other specialty leasing arrangements. Shopping center owners also typically use license agreements to memorialize advertising and marketing deals, such as digital media, sponsorships, specialty or seasonal promotions, or vendors or businesses hosting events within a shopping center.
From a legal perspective, the distinction between a license agreement and a lease is significant. A lease conveys an interest in the real property, granting the tenant the exclusive possession and control of a specific, demised premises for a defined period of time. The right to occupy the premises to the exclusion of others is perhaps the most defining feature of a leasehold interest. In contrast, a license only grants temporary permission, or privilege, to access the shopping center for a limited purpose, and typically for a shorter duration than a lease. A license does not convey an interest in the real property, and the licensor (the shopping center owner) retains some degree of possession and control of the space. For instance, a lease defines the extent and bounds of the demised property, whereas a license agreement may provide that the licensor may, at its discretion, relocate the licensee to another location in the shopping center.
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