Hunton Retail Law Resource

When developing a retail shopping center, landlords have a vision for what that shopping center will look like. This vision comes to life as the shopping center is leased up and tenants open for business. In order to preserve that vision, and ultimately the marketability of the shopping center, landlords will craft permitted use, prohibited use and exclusive use concepts into their leases to ensure that the shopping center occupants continue to operate in the shopping center throughout the term of their leases in accordance with the landlord’s vision.

The rise of e-commerce and the struggle many brick-and-mortar retail stores face is nothing new.  Customers are increasingly choosing to shop for clothes, furniture and even groceries from the convenience of their own homes. More recently, however, this shift in the way consumers shop has given rise to new types of retail stores – small showrooms and “pop-up shops.” While showrooms are not entirely new concepts, purely digital companies are increasingly opening up physical showrooms where customers can see and touch merchandise before deciding to buy, while the actual transactions often remain online. Pop-up shops – another retail store model - allow retailers (often online or seasonal retailers) to have a physical presence for a limited duration to essentially test run whether a permanent store would be lucrative.  

Most retail tenants desire to locate their respective businesses amongst other retail businesses in malls, retail shopping centers or other mixed-use centers. Therefore, when negotiating retail leases, some of the most heavily discussed provisions involve the tenant’s share of Common Area Maintenance (“CAM”) expenses. CAM expenses essentially determine how much money a tenant will contribute to the upkeep and maintenance of the surrounding shopping center owned by the landlord.

E-commerce and online shopping are here to stay, but the explosion of new technology and the number of resources available to facilitate online shopping is an opportunity for retailers to embrace new ideas and concepts that will increase foot traffic to their physical locations. The store-within-a-store concept isn’t new, but the type of store-within-a-store retailers have conventionally seen is changing and bringing in new business.

It’s probably painfully obvious to companies in the retail industry and beyond that the old paradigm of the retail shopping center is being permanently altered by e-commerce, as well as changing consumer preferences. As the old-guard stalwarts of retail begin to shutter stores or fold completely, it is up to both landlords and existing anchor tenants to adapt to the changing landscape, or risk prolonged periods of high vacancy.

One of the areas which can hamper efforts to re-tenant spaces are the restrictive covenants contained in both declarations governing shopping centers and ...

Recently, the Fourth Circuit affirmed a $31 million dollar jury award in favor of retailer Lord & Taylor for lost profits in connection with a breach of its reciprocal easement agreement (“REA”) with D.C.-area mall owner White Flint, LP. The court found White Flint’s efforts to redevelop the regional mall into a mixed-use project violated the terms of the REA under which the mall landlord agreed to maintain the site as a “first-class high fashion regional Shopping Center.”

The practice of incorporating use restrictions in leases is common by retailers to protect their investments in new stores and improvements to existing stores. However, retailers should consider both property and antitrust issues when drafting and enforcing use provisions of a lease. In addition, use restrictions could be used by disgruntled potential tenants as fodder for litigation if the terms have the effect of excluding tenants from prime locations.

Traditional shopping malls across the country are facing a decreasing amount of customers, declining profits, and, in certain cases, overall viability. Though numerous specialty malls continue to be quite profitable, many regional shopping malls are not as fortunate. Online retailers dominate an ever increasing share of the retail market, and the retailers that have traditionally made up mall tenants may no longer see the value in as many, or any, brick and mortar stores. Due in large part to the convenience and success of online retailers, American consumers generally spend less time shopping at brick and mortar stores, opting instead to shop from their computers or other media devices. In response, and out of necessity, major department stores have dramatically consolidated their number of locations over the past few years. Regional malls anchored by troubled department stores such as Sears and Macy’s are perhaps faring the worst. 

On June 3, 2016, Hunton & Williams LLP published a video discussing a 2015 ruling by the National Labor Relations Board (“NLRB”) as it relates to the real estate industry, which fundamentally alters the joint-employer standard. The ruling has already been making waves in the retail industry as the NLRB seeks to apply the new standards to hold certain franchisors liable for the employment violations of its franchisees. The decision comes in an era of increased reliance on third party contractors and staffing agencies to fulfill companies’ staffing requirements and, with recent NLRB action, is being expanded to hold franchisors liable as joint-employers. Under the new standards, an entity can be held liable, as a joint-employer, for the violations of another if the entity retains to itself the ability to effect the terms and conditions of the other’s employees.

A world of driverless, or autonomous, cars is much closer than we may think, and it will leave an indelible mark on retail real estate development, according to a GlobeStreet interview with Angelo Carusi, a principal at architecture and design firm Cooper Carry. According to numerous automobile industry experts, driverless cars will be in use and on the roads within the next 10 years.

Earlier this month, teen clothing retailer Aéropostale filed for Chapter 11 bankruptcy protection, seeking to immediately close 154 of its over 800 stores located throughout the United States and Canada. Many of these stores are located in smaller shopping malls, which have been hit the hardest by the shift to online shopping.

The continued march of retail bankruptcies since 2015 includes Sports Authority, Vestis Retail Group, Inc. (the operator of Sports Chalet, Eastern Mountain Sports, and Bob’s Stores), Radio Shack, American Apparel, Quicksilver, Wet Seal, Delia’s and PacSun.

Prolonged and torrential rains have caused widespread flooding in Texas, Oklahoma and surrounding areas. It is important that policyholders remain mindful of the substantial benefits that may be available to them for resulting economic and physical losses under ordinary business insurance policies.