4A — December 13 - 26, 2019 — Commercial Real Estate Law — M id A tlantic
Real Estate Journal
www.marej.com
Commercial Real Estate Law By Scott C. Butler, Kaplin Stewart Protecting redevelopment opportunities in retail leases
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ational retail ten- ants normally desire that the site plan of
well as restaurant pads, in areas that may not have been identified on the original site plan for the shopping center. Therefore, it is important for landlords to keep as much freedom as possible to recon- figure the shopping center. Control over the site plan is important to the tenant for three main reasons: vis- ibility, parking and access. The visibility of the premises from the adjacent roads and within the shopping center is a key factor for having a suc- cessful store. However, after evaluating the sight lines of the shopping center from the adjacent roads and factoring in any pylon signage being provided, the tenant might realize that there is only a limited area in front of the premises that has a material impact on such visibility. is the law. Oregon recently passed its own rent control law, and Massachusetts may not be far behind. Experts disagree on the effectiveness of rent control. Some believe it tends to accelerate gen- trification by incentivizing landlords to convert rental housing into higher-end con- dominiums. Others believe it may reduce the displacement of lower-income tenants and the elderly. New York state law makers recently approved a package of bills allowing communi- ties to establish rent-control policies when they face severe housing shortages. These initiatives expanded rent stabilization rules that were already in place in New York City and a few surrounding counties. A group of New York landlords have responded by challenging aspects of the new laws in court, particularly those provisions no longer allow units to become un- regulated when tenants leave.
Available parking spots in the parking field in front of the premises is clearly impor- tant to the tenant to attract customers and not dissuade them from going to a com- petitor’s store located nearby (or electing to purchase any needed items from a competi- tor on-line). The tenant also might be concerned over any overflow parking from other areas of the shopping center; however, this might be re- solved by adding a minimum parking ratio for the shopping center. Access roads are also very important for a tenant in order for customers to have easy access to the parking field im- mediately in front of the prem- ises, as well as to ensure that the tenant’s trucks will have access and turning ability in order to deliver inventory to Landlords allege such laws are unconstitutional takings of private property without compensation. Unfortunately, this argument has been previ- ously tried and failed in many jurisdictions. Large parts of California are currently facing intense gentrification pressures. Local activists argue that the dis- placement crisis has been fu- eled by greedy speculators and actions taken by banks, pri- vate equity, and Wall Street firms that encourage displace- ment. In San Francisco, the proposed Community Oppor- tunity to Purchase Act, will allow nonprofit housing orga- nizations to buy an apartment building before it goes on the open market, thereby protect- ing tenants from displacement and preserving their homes as permanently affordable. Cali- fornia lenders and investors are also being asked to em- brace an Anti-Displacement Code of Conduct. The Washington Supreme
the rear of the store. The ten- ant, however, might only be concerned about the main en- trance to the shopping center, and not expect their customers or deliveries to be using all of the ancillary entrances and access drives. As a result, instead of grant- ing a tenant complete control and approval rights over the entire site plan, a landlord and tenant should agree upon specific “no-build” areas in order to protect the foregoing key items. Identifying such specific areas in the parking fields and access drives that a landlord will not be able to modify should satisfy the tenant’s concerns, while also giving the landlord some flex- ibility in the future. Also, a landlord and tenant should agree on which portions of the shopping center should Court recently heard argu- ments about the constitution- ality of two Seattle housing laws that affect how landlords select tenants. In 2016, city council passed a “first-in- time” law requiring landlords to lease their rental units to the first person to submit an adequate application. Under the law, landlords have no flexibility to use their own judgment in selecting a ten- ant. A second law prohibits landlords from inquiring about criminal history, run- ning a criminal background check or relying on criminal history when considering a rental applicant. The two laws represent a trend in regulation aimed at limiting a property owners’ ability to exercise discretion in the rental process. It is doubtful that the court will rule that such laws constitute a “regu- latory” taking of property. Alleging a regulatory taking is often perceived to be less of a constitutional issue and
have height limitations, so that some areas can have the ability to be multi-story residential or office buildings. Even if a landlord intends to keep the shopping center as currently constructed, circumstances can change, vacancies can arise, and a future ability to create more value can happen. As a re- sult, negotiating “no build” areas, height restrictions and parking ratios are some of the most important parts of a lease negotiation with a retail tenant. Scott C. Butler is a prin- cipal of Kaplin Stewart and a member of the Real Estate Transactions and Corporate &Business Law Departments. He con- centrates his areas of ex- pertise in real estate and corporate transactions. more like a tired landlord refrain about making less money than usual. While this region has large- ly been immune from heavy- handed property regulation, the current political climate may portend changes. Hop- ing for the best is not a strat- egy I would recommend that landlords think seriously about preventive measures rather than hoping for the best. Neil A. Stein is a prin- cipal of Kaplin Stewart and a member of the Land Use, Zoning & Develop- ment Department. He has extensive experience in zealously representing landowners, developers, institutions, and non-prof- it groups in all phases of real estate law, including complex transactions, en- tity structuring, financ- ing, land use approvals, land use litigation, emi- nent domain, and real estate tax appeals.
t h e s h o p - ping center not change f rom what is initially attached as an exhibi t to the lease, and that the
Scott C. Butler
height of the other build- ings not exceed one story in height (and sometime not exceed the height of their premises); however, such a provision will severely limit the ability to reconfigure the shopping center to maintain, keep and create value in the event of future vacancies. In recent years, landlords have been able to save failing retail centers by adding multi-story residential and office uses, as
By Neil A. Stein, Kaplin Stewart Cities begin to impose stricter regulations on landlords; The potential impact on private property rights
SanFranciscoandNewYork City have recently sought to impose tighter regulatory
controls on multi-family l and l o r d s . These con- t r o l s w i l l likely cause l a n d l o r d s to incur un- foreseen ad-
Neil A. Stein
ditional costs that will impact the economic value of their investment. The question is whether courts will allow constitutionally protected property rights and invest- ment-backed expectations to be eroded by such regulation. Today, many landlords will not remember when Philadel- phia had its own form of rent control, principally because it was struck down by the Pennsylvania Supreme Court in 1955. In the last 65 years, there has been no meaning- ful desire to see its return. However, in New York and San Francisco, rent control
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