Retail Real Estate Law

The COVID-19 Crisis Is Now Over – What Is Next For Retail Real Estate?

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If you are like we are, you’ve been receiving dozens of COVID-19 emails or other messages each DAY. On the “law” side, they discuss and dissect the legal rights and remedies implicated by the current crisis – force majeure, impossibility, impracticality, material adverse changes (effects), foreclosure moratoriums, and on and on. On the “business” side, they opine on holding off the payment under mortgages or leases, or the applicability of insurance coverage, and on and on. The late Newton Minow, when last to speak on a panel, is reported to have said something like: “By this time, everything to be said has already been said, but not everyone has had a chance to say it. Now is my turn.” That’s the feeling we are getting about the nearly 200 messages we are receiving weekly.

 

Some “advice” is well thought out; some is authoritative; some is important; some is trivial; some are well-meaning but dangerous. To us, the common factor is that all (that we have seen) are backward-looking. What about tomorrow? In the words of Bishop T. D. Jakes, “Never make a permanent decision based on a temporary storm. No matter how raging the billows are today, remind yourself: ‘This too shall pass!’” [Read more…]

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It Takes A Village – A Different Approach To The COVID-19 Crisis

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These days, unsurprisingly, there is no shortage of emails, blogs, and other communications about how the COVID-19 crisis impacts on legal rights and duties. We get dozens of such each day. Most focus on “Force Majeure”; some address the doctrines of impossibility and impracticability. Some concern themselves with “insurance,” something that will be of next to no help for this situation. There’s a lot of good thinking on the “legal” side of those issues, but (alas) facts also matter. And, the “facts” change by the minute. “Stay home” orders, mandated closings, moratoriums, ordered closings, etc. pop up each time we open our browsers. The “Shadow” may know what comes next, but Ruminations doesn’t.

We’ve written about force majeure, impossibility, and impracticality in the past. If interested, click HERE and HERE. They explain some concepts and describe some law. We don’t feel the need to update them because the law hasn’t changed (yet); only the specific type of problem has. Using our long-broken crystal ball, we predict that new law will be made in the form of result-oriented court decisions. Those decisions may help the survivors. They won’t help the fallen. [Read more…]

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Today, Hubris And Existentialism, Not “The Missing Comma”

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Hubris (hu·​bris), n. [Gr. Hybris].wanton insolence or arrogance resulting from excessive pride or from passion. That’s what it would be if we were to present today’s blog posting as if our subject matter was important in the current situation. It is also what all of us, unknowingly for sure, have demonstrated in thinking that our agreements could cover every possibility. If any reader had a COVAD-19 provision in their documents before January, we invite you to share it with the rest of us.

Countries have shut down walk-in commerce. In the states and Canada, stores, large and small, are closing “temporarily.” Restaurants, the “saviors” in today’s shop-on-line world, are closing “temporarily.” Hours are being cut back. Rents won’t be paid. Some, mainly marginal, tenants won’t be coming back. Some (pretextually) will use their co-tenancy right to “skinny down” their portfolios. We’ll all fight about the meaning of “force majeure.” We’ll be picking through our leases, open purchase agreements, and loan documents (including loan commitments) in an effort to “get out.” [Read more…]

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Whose Calamity (Risk) Is It?

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The COVID-19 Coronavirus is responsible for millions of words that would never have been written in its absence, even ours today. We have no special understanding of this virus or its impact. So, don’t expect us to add to two clear aspects: general confusion and uncertainty. Instead, we’re going to Ruminate about allocating risk and assigning responsibilities in situations where no party is at fault.

In our leases, we already accept that risk is and can be allocated for events, not in the control of a party. Think about negotiated provisions dealing with a loss of electricity or a temporary roadblock. [Read more…]

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Too Wordy To Be Enforceable?

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There are lessons to be learned by looking outside of our own field of interest. That was our thinking when we saw a decision out of a New Jersey appellate court last Tuesday. It involved how a document was drafted, an arbitration requirement, and more than questionable behavior by one party. Initially, when we saw that the heart of the case was overreaching by a nursing home, we set the decision aside. But, we were troubled. So, we resumed reading the decision and were rewarded with a tidbit of “wisdom.” What drew our attention was the following provision from the disputed agreement, especially its opening 229-word sentence: [Read more…]
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The Law Is Not Always Intuitive; Avoid Learning It At Your Own Peril

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Often, we come across a court decision based on a narrow set of facts and, thus, limited in its effect. The court’s analysis and the case’s result is primarily of interest to the involved parties and a handful of others who might find themselves in the same situation. Sometimes, however, there is a larger lesson to be gleaned, one not even about the narrow subject matter discussed by the court. As we see it, at the very end of January, a Florida District Court of Appeal Court delivered such a decision.

The subject matter before the court was a dispute over the obligation to pay a brokerage commission. Florida law provides that “[i]n the absence of a special contract, a broker is entitled to a commission when that person is the procuring cause of a sale.” We don’t know how many states have a similar law. Our experience is with those whose law requires a written agreement or a specific written substitute for such an agreement. For example, here is the relevant part of New Jersey’s statute [N.J.S.A. 25:1-16]: [Read more…]

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Why Are Obnoxious Holdover Rents Enforceable?

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Is a holdover rent of 200% or even 150% an unenforceable penalty or does it just give the tenant an option: pay it or leave? Earlier this month, a California appellate court answered that question for its jurisdiction, but not without a lengthy analytic dissent.

To get us all on the same page, here are some ground rule definitions. “Holdover” by a tenant means it stays in the space, without its landlord’s consent, after the term of its lease expires. [For a lengthier exposition, click HERE for an earlier blog posting.] As to whether such a cranked-up rent constitutes enforceable, agreed-upon, liquidated damages or an unenforceable penalty, we need to review what constitutes legitimate liquidated damages. That’s because if an agreement, such as a lease, specifies an amount to be paid by a party upon breach of its agreement, that agreed-upon amount needs to be a reasonable estimate, made at the time of agreement, of what the damaged party would lose upon such a breach in a situation where the damages, if calculated at the time of the breach, would definitely exist, but would be very difficult to calculate exactly. [For a lengthier exposition, click HERE for yet another earlier blog posting.] [Read more…]

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Landlords Can Be Retailers And Never Sell Any Goods

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At one time (and even today), when you saw a closeout bookseller or a Halloween store at a shopping center, a good guess was that the property was sucking wind or its functional equivalent. Though these are generally unattractive uses, they do bring revenue and customer traffic. So, the impact of their presence lies in the eyes or the pockets of the observer.

Temporary uses don’t have to tarnish a shopping center. If you call the Halloween store a “pop-up,” its image improves. There’s an idiom from as early as 1833, adjusted to 21st Century English: “Call me anything you want, just don’t call me late to dinner.” That would seem to apply to filling a property with rent-paying, foot traffic generating tenants.

Temporary tenants don’t have to be solely discount or low brow ones. Landlords have the power to create a shopping environment. Seemingly perennially vacant spaces can be converted to above-market rental opportunities. And, this isn’t just for the large properties. Permanent pop-up spaces can be created. Outfit a single store or more for use by a continuing series of fashion retailers. That would be like having a regular tenant that turns over its inventory every month. Just as furnished houses rent for more than vacant houses, “furnished” stores can rent for more than empty ones. Earn money on more than real property. Rent the improvements and the fixtures as well.

Fashion doesn’t tickle your fancy? Then, how about pop-up restaurant space? Invest in a fully equipped, first-class commercial kitchen with front-end restaurant fixtures. Then, rent the space out for a month at a time. Be even more adventurous, outfit a kitchen that can be rented every Tuesday by one “chef,” and every Friday by another. That’s seven tenants each week on a rotating basis. With a single day in the space, a once a week tenant could pay more than 1/7 of what a full-time, long-term tenant would pay. How about creating incubator space just like the high tech people do. You might even want to exchange use of the space for a percentage of any permanent restaurants growing out of your shared kitchen (or any shared retail space).

You can call the spaces “pop-up” or call the spaces “concept,” but whatever you choose, call them Kaching-Kaching, the sound of a cash register. Restaurants, art, jewelry, fashion, shoes, whatever – create a permanent marketplace of your own.

Think out of the box. When you’ve got an empty space and can’t easily rent it, you get hurt, and, importantly, so do your tenants. Quality traffic rises all boats.

These kinds of opportunities aren’t just for property owners. There’s a business in operating shared spaces. After all, many mall food courts are “that” business. One master tenant providing fit-up space to a variety of operators. The master tenant pays “wholesale” rent and charges “retail” rent to the restaurants. Why not be a tenant operating time-shared space?

What brought this to mind was Macy’s announcement last week that it would be bringing its brand to community shopping centers (strip malls) and closing about 125 mall stores over the next three years. Supermarket-based properties, especially ones with drug stores, remain stable, somewhat (but not wholly) insulated from today’s evil villain: THE INTERNET. They have decent foot traffic because people keep running out of food and toothpaste. We can’t speak for Macy’s and its planned 15,000 square foot “Market by Macy’s” stores (carrying apparel, accessories, home goods, and beauty products), but we think its thought is that customers, once at the property, will visit these smaller stores. Sephora and others are thinking the same thing.

What’s the connection? Why did the Macy’s announcement drive today’s blog posting? That’s simple. Foot traffic is the key to brick and mortar success. Tenants create foot traffic, but they don’t have to be the only ones. Landlords can do the same and make money doing so. Some tenants own their own properties. More landlords can own their own retail businesses and not even have to run them.

Why does Ruminations think today’s topic belongs in a blog focused on retail real estate law? Here’s our thinking. There was a time before condominiums, cooperatives, time shares, fractional ownership, and commercial mortgage-backed securities. Entirely new real estate industries and practice areas have been built on these concepts. Smart readers, especially those fearing declines in brick and mortar real estate, need to think outside the box. Retail real estate, and by extension, retail real estate law, doesn’t have to be stagnant. There are new ways to think about drawing customers away from their desktops. So, by example, some of the simple ideas we’ve tossed out today might work better with licenses, not leases. Or, perhaps, with an entirely different way to structure an occupancy agreement. Our readers can make that happen. Go for it!

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