Newsletter

SPRING 2014

 

 

 

Photo of Scott D. Brooks

Scott D. Brooks
415.262.5110

Retail & Commercial Development

 

SELLING A PAD IN AN OPERATING SHOPPING CENTER – NOT AS EASY AS IT MIGHT SEEM

By: Gary Glick

Developers intending to sell a pad in an operating shopping center to a retail investor (i.e., an owner of a parcel, leasing to a retail tenant such as McDonald’s, Chase or Walgreens) or to a retail operator must consider a variety of issues, beyond the mere execution of a purchase agreement.  And, while it might appear that such a sale would be quite easy to complete, this is not necessarily the case.  Although the actual purchase agreement is usually reasonably simple and can be consummated rather quickly, the hard part is properly documenting the relationship between the pad parcel owner (the “Pad Owner”) and the shopping center developer - the owner of the remainder of the operating shopping center after the sale (the “Shopping Center Owner”).

To document the relationship between the Shopping Center Owner and the Pad Owner after the sale of the pad (the “Pad Property”), the parties must enter into some form of recorded document in the nature of a reciprocal easement agreement with covenants and restrictions.  The lone exception would be when such a document already exists at the shopping center.  However, if such a document does exist, it probably still does not alleviate the need for the parties to enter into an additional recorded agreement, since it is hard to imagine that the existing recorded agreement covers all of the items that will need to be addressed in connection with the relationship between the Shopping Center Owner and the Pad Owner.  For purposes of this article, it is assumed that no such recorded document exists.  The new document that needs to be recorded can be referred to as an “Agreement of Covenants, Restrictions and Easements Relating to Parcel Sale” (the “Pad Sale REA”).

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TOP 10 ISSUES IN COMMON AREA AND COMMON AREA EXPENSE PROVISIONS IN RETAIL LEASES

By: Scott Brooks

When negotiating a retail lease, the provisions relating to the Common Areas of the Shopping Center and the tenant’s obligation to contribute its respective share of Common Area Maintenance Expenses (“CAM Expenses”) are among the most heavily debated topics. The following is a “Top 10” list identifying some of the key points (not necessarily in order of importance) for discussion relating to Common Area and CAM Expense provisions in retail leasing. Of course, when reviewing the following issues, it is important to keep in mind that essentially all issues in commercial leasing (including the following) come down to the respective bargaining leverages of the parties, which involves a number of factors including the tenant’s financial statement, operating experience, effect on the “tenant mix” or customer traffic within the Shopping Center, size of the premises leased, availability of alternative tenants for the same location, and desirability and existing success of the Shopping Center without the lease to the tenant.

1. Defining the Common Areas. It is typical for a retail lease to allow the landlord the right to designate and change, from time to time, the “Common Areas” of the Shopping Center (which may generally be described as those portions of the Shopping Center made available by the landlord for non-exclusive use by occupants of the Shopping Center and their customers and invitees). From the landlord’s perspective, the landlord wants to be careful to allow (i) flexibility in development and remodeling of the Shopping Center, particularly in the context of new development, where outparcel or “pad” buildings are not yet established, and (ii) rights to establish certain use rights within the Common Areas, which may restrict access to some (but not all) Shopping Center occupants, notwithstanding the designation of the same as “Common Areas”, such as “drive-thru” aisles, truck loading areas, “short term” parking areas and outdoor patio seating areas. From the tenant’s perspective, the tenant has bargained for being a part of a Shopping Center that looks like the one shown on the site plan which the landlord has marketed to the tenant, and the tenant may have legitimate concerns about changes that would adversely affect the tenant’s use, operation, visibility or parking. Accordingly, the parties may compromise on the issue of Common Area changes by establishing “Permitted Building Areas” or “envelopes” within which the landlord may place buildings, or “No-Build Areas” within which the landlord may not place structures, thus preserving the tenant’s view corridors, main access drives or parking areas. Alternatively, particularly in the context of a larger Shopping Center, the parties may establish a “Primary Common Area” outside of which the landlord may make any changes it desires, but within which the landlord shall not make changes which would materially adversely affect the tenant’s use, operation, visibility (which may include visibility of the tenant’s signage) or parking without the prior approval of the tenant.

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If you have any questions regarding this publication, please contact:

Gary A. Glick at 310.284.2256 or gglick@coxcastle.com
Scott L. Grossfeld at 310.284.2247 or sgrossfeld@coxcastle.com
Daniel J. Villalpando at 310.284.2278 or dvillalpando@coxcastle.com

Dave W. Wensley at 949.260.4634 or dwensley@coxcastle.com
Bob J. Sykes at 949.260.4640 or rsykes@coxcastle.com
Scott D. Brooks at 415.262.5110 or sbrooks@coxcastle.com

 


 

ORANGE COUNTY
3121 Michelson Drive, Suite 200
Irvine, CA 92612

949.260.4600    949.260.4699

SAN FRANCISCO
50 California Street, Suite 3200
San Francisco, CA 94111

415.262.5100    415.262.5199