Hippos are very territorial; ants, not so much. Large tenants are very territorial; small tenants, not so much. Protecting some sense of dignity, we’re not going to tell readers how hippos protect their chosen turf. Find out on your own. In the retail leasing context, we equate “territorial” with “site plan control.”
Though it hardly needs to be said, we’ll do so anyway. Landlords reluctantly allow tenants any right other than the right to pay rent. We don’t really mean that, and it isn’t actually true, but it gets an idea across. More fairly stated, landlords prefer maximum flexibility in the use of their property. Of course, that flexibility can be substantially achieved by keeping the property vacant. That, of course, defeats the reason for owning rental property and, thus, landlords will compromise flexibility for money.
Now, though money is fungible, it doesn’t seem to be so when it comes to negotiating a lease. In the hands of some tenants, it can be a club. In the hands of others, maybe only a switch. That’s because, in the end, the execution copy of a lease (or any other agreement, for that matter) is shaped by the relative bargaining power of the prospective tenant and the prospective landlord. Money is only one factor. Others includes the tenant’s “flag” (brand name), the availability of space at nearby properties, past-dealings, tenant mix, and even the subjective fears of each party. So, there is no rule that anchor tenants get approval rights over any changes to a property and the local pizzeria owner gets none. Like so many other things affecting what will be found in a lease, “it depends.” Often, it depends on whether the tenant “asked.”
Landlords and tenants each have legitimate needs when it comes to the use of common areas. The reason all of the discussion about use of the common areas comes from the “tenant” side is because, absent a discussion, the landlord holds all the marbles. Tenants want some of them. So, they need to open the discussion. When a tenant chooses to be at a multi-tenant property, typically a shopping center, it expects certain benefits from the owner that it doesn’t expect when it rents a city-streeted store. It expects on-site parking. It expects access for its customers and suppliers; it expects visibility of its store and its signs. It expects be at a property that doesn’t discourage its customer from visiting. In fact, impliedly, that’s what the shopping center landlord is selling.
Access is critical to all tenants, both for customers and for deliveries. If a tenant is a cable television company using its space for customer returns, it might not care how many turns its valued customer needs to make in order to get into the shopping center. On the other hand, customers seeking to buy a pizza may very well shop at a pizzeria located on the easy side of the road, even if the trip takes a little longer and the pie is a little inferior. Yes, we are talking, right-in; left-out and divided highways. Yes, we are talking four-way intersections. When a tenant chooses its location, it gets to evaluate its accessibility and weigh that factor against the price. Once it signs its lease, it has a right to want to keep what it saw.
Now, we start off with site plan control over “access” because it isn’t something any small space tenant, other than a “must be here” one really gets. Yes, if the landlord really, really wants to have the only licensed marijuana dispensary in the county locate its business at the property, it might yield control over the access points to the center. Yet, is this a big issue for the low bargaining power, small space tenant? Answer – generally not. Keep in mind, when we are talking site plan control, we are talking about having a veto over a landlord’s voluntary actions, not against actions by the government. Actions by the government are not in a landlord’s power to override. So, those are the subject the “risk allocation” that takes place in a lease. That’s for another day, but if you’d like to see what Ruminations has previously written about risk allocation, click: HERE.
Why isn’t control of access points to a shopping center really all that important to the small tenant? For one, landlords don’t want to screw up access to their properties. Existing tenants may suffer, but so will the landlord. As tenants move out, landlords need to replace them. Existing tenants may be stuck with a lousy situation until the end of their lease’s term, but prospective tenants don’t have to become actual tenants.
Another reason is that where a property has one or more hippos for tenants, they will already have protected the territory.
So, what is a small tenant to do about access? If it is a practical concern, they will probably be more successful negotiating for a termination right if access is materially, adversely changed (for any reason). Even small tenants may have enough bargaining power to get that and it isn’t a big loss for a landlord if a small tenant drops out. If the landlord fears that it will lose a lot of small tenants that way, then it ought to rethink whether it would ever eliminate an existing access point without creating a reasonable replacement one.
Now, having embedded a few thinking points in what precedes this, we go on to a more serious issue – parking. That makes it a good time to return the concept of hippos and ants. We didn’t say that only one of those species was territorial. They both are. The difference is how large a territory each can control. That should be true with tenants. Without reasonable parking for customers, a merchant can be pretty lonely. Large stores need a lot of parking for support; small stores, less so. That, however, doesn’t mean: no parking. It means reasonable parking. Every tenant should be assured that customers won’t “drive on by” because “there’s never any parking.” That’s probably what Yogi meant when he (reputedly) said: “No one goes there anymore, it’s too crowded.” Reportedly, he was explaining why he stopped patronizing Rigazzi’s, a St. Louis restaurant. To us, his reputed words make more sense if the reason he stopped going to (a customer-less) Rigazzi’s was because he couldn’t find convenient parking.
It seems as if an entire school of landlords (or perhaps their negotiators) have taken the words of W. C. Fields to heart when, in the 1936 film, Poppy, he tells his daughter, “If we should ever separate, my little plum, I want to give you just one bit of fatherly advice: Never give a sucker an even break!” Landlords give large tenants “protected parking”; small tenants should get an even break. The only difference should be the size of the field or protected area. Realistically, landlords aren’t going to build-out directly in front of other stores, so what’s the real cost in giving up what wasn’t going to be used? And, we don’t mean just directly in front of the particular tenant’s store. A little to left and a little to the right is what is needed.
Much the same should be said about visibility, but even more so for the small bargaining power tenant, one who probably doesn’t have a pylon sign position. Once it elects to lease a store at a given location within a project, a tenant is entitled to having that location’s basic attributes remain unchanged and one of those basic attributes is its visibility. It is one thing to choose a location at the back of a building; it is another thing for the landlord to later do something that creates the functional equivalent of that rearward facing space.
A recurrent theme in our blog postings is that one size doesn’t fit all. Yes, landlords really do need flexibility to reposition their properties. Major repositioning, however, really requires getting rid of tenants or moving them elsewhere at the property. That shouldn’t be done in the way urban condominium developers drive rent-controlled tenants out if their newly-acquired properties. It is done by signing short-term leases, not by making them miserable. And, when signing a short-term lease, not much is given up by giving those tenants the comfort of knowing that they are going to get the benefit of the parking, access, and visibility that they saw before signing the lease.
Now, readers might still be wondering what ants fear and why they are territorial. We don’t know what is in the mind of ants (and we are in no mood to disparage some people we’ve met on the other side of deals because, if nothing else, turnabout is fair play), but we do know that ants fear other ants. As for elephants, their fear is called myrmecophobia. To find out what that fear is about, look it up in your Funk & Wagnalls. At the beginning of today’s posting, we likened ants to small tenants. Think about that.
OK, those searching for brilliance or “diamonds” in today’s posting will be disappointed unless they remember the title of our blog, Ruminations. That’s all we wanted to do today, Ruminate about the plight of small tenants. They have similar concerns to those of large tenants. Landlords agree to allow large tenants some control over changes to the property they saw when they moved in. Yet, small tenants, just because they don’t have the same clout, don’t get the protections that they really deserve. W. C. Fields understood that and our lamenting about their plight isn’t going to make much of a difference unless more and more properties become vacanter and vacanter. [Yes, that’s not a word.] Landlords, if you’re not going to deprive a tenant of parking, access or visibility, say so in the lease. If you intend to deprive them of those things, say so before the lease is signed – give the sucker an even break.