Understanding Reciprocal Easement Agreements
"Typically", reciprocal easement agreements (“REAs”) are used when a property is owned by more than one person or entity, and the persons or entities wish to develop the property as an integrated shopping center.
In the case where more than one owner is interested in developing a shopping center, the most common scenario is that one of the owners acts as the developer and the other owner is a major retailer (for example, Target or Wal-Mart) in that shopping center. Often, the developer will lease a portion of the property to the major retailer, in which case an REA is not necessary since the lease will provide for construction and operation of the shopping center. If, however, the major retailer desires to purchase a portion of the property, it will be necessary for the developer and the major retailer to enter into an REA. If not, there will be no contractual agreement between the developer and the major retailer governing such things as the construction of the shopping center, the architectural compatibility of the buildings, and the use of the common area. Without an REA, the developer or the major retailer could build whatever and whenever it wishes and could conceivably prevent the other party from using its parcel for parking, access or utility lines.
In the event that the developer and the major retailer enter into an REA, it will be recorded by the parties in the county in which the property is located and will create certain contractual obligations between the developer and the major retailer that will enable a shopping center to be constructed. Once constructed, the shopping center is operated as one integrated retail project. These contractual obligations will “run with the land” of the property that comprises the shopping center. In other words, the owner, and any subsequent owner, of all or any portion of the shopping center will be subject to the obligations contained in the REA and will benefit from those rights.
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Top 10 Issues in Negotiating Go Dark Provisions in Retail Leases
It is not uncommon for a tenant in a major tenant lease transaction, or a tenant with a significant amount of bargaining leverage, to refuse (or attempt to refuse) to agree to a continuous operating covenant in a retail lease. These tenants insist upon the flexibility of being able to close their businesses, or “go dark,” if economic circumstances warrant. After all, it may be more economically prudent for the tenant to simply pay rent, instead of being obligated to continue to operate at a loss, while paying rent.
Landlords dislike go dark provisions, for a multitude of reasons. Go dark provisions may result in closed premises in the landlord’s shopping center, causing a perception of blight or failure and a loss of tenant synergy and corresponding loss in value through lower rents. If other tenant leases contain co-tenancy provisions that require a number of tenants to be open (or the particular tenant that goes dark to be open), then the go dark provision could impact and trigger co-tenancy rights and remedies in the other leases. If the landlord is relying on, or expecting, percentage rent, the tenant’s closure under a go dark provision will cease any potential payments under that provision.
Notwithstanding the negative impacts, over time landlords have come to grips with these provisions. This article will briefly discuss the top ten issues in navigating through go dark provisions.
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