Mid Atlantic Real Estate Journal — Spring Preview — April 27 - May 10, 2012 — 31A
P ennsylvania R eal E state L aw By Scott C. Butler, Esq., Kaplin Stewart Keeping your retail tenants open for business
n the current economy, it is critical to attempt to force the tenants of a
premises for the sale of goods or services, fully stock its premises with inventory and employ a full staff of employees. This covenant should also include a requirement that the tenant operate its business in a man- ner that will maximize its sales from the premises. In some situ- ations, the landlord should add requirements that the tenant operate only under a specified trade name and for a specified use, which requirements are im- portant when trying to control the character and tenant-mix of a shopping center.
Many tenants resist agree- ing to a “continuous operation” covenant and take the position that, so long as they are paying all of their rental obligations under their lease, they should not be required to be open and should not be in default. When negotiating a lease with such a tenant, landlords should at- tempt to include a provision in the lease that obligates the tenant to open for business for at least one full day prior to an agreed upon deadline. Although this provision will not prevent the tenant closing for business
during the lease term, a tenant is unlikely to invest money in opening a store for business and then close immediately thereafter. Usually, if the store is open for at least one day, the tenant will remain open for as long as possible and only close if the sales from the store do not justify the cost of employing the personnel necessary to keep the premises open for business. Landlords could also insist on a compromise with the ten- ant that, so long as the tenant agrees to a “continuous opera- tion” covenant, such tenant can
have the ability to close for busi- ness, pay less rent or terminate their lease if one or more of the other stores in the shopping center close for business. Al- though granting a tenant this type of “co-tenancy provision” is a useful negotiating tool, it re- enforces the importance of ob- taining “continuous operation” covenants in the other leases in the shopping center. Scott C. Butler, Esq. is a principal in the Real Estate, Business & Finance group of Kaplin Stewart in Blue Bell, PA. n
retail shop- ping center to be open for business. If a number of tenants close, t h e o t h e r tenants may have rights to pay less rent
Scott C. Butler
or terminate their leases under “co-tenancy provisions”, and the closures may hinder the landlord’s ability to lease other vacant space in the shopping center. Such closures may also cause the existing tenants of the shopping center to not renew or extend their leases. In addition, many lenders are skeptical in lending funds to shopping cen- ters with vacancies even if the cash flow is sufficient to pay the requested debt. Such lenders take the position that the loan will not be as secure because a closed tenant is more likely to default in its obligations to pay rent. In order to protect against such closures, landlords should negotiate for a “continuous operation” covenant in their leases. This covenant should include obligations for the tenant to open for business, continuously operate for the entire term (including all re- newal terms) during specified minimum hours, use its entire many years for the economy and housing and employ- ment markets to recover and return to pre-recessionary levels. For the foreseeable future, multi-family’s star will continue to rise and re- tain its leading role status in commercial real estate. Ken Uranowitz, manag- ing director of Livingston, NJ-based Gebroe-Ham- mer Associates has been with the firm since its inception in 1975. The firm markets suburban and urban high-rise, mid- rise and garden-apart- ment buildings as well as mixed-use and free- standing office and retail properties throughout New Jersey, New York and Pennsylvania, includ- ing Philadelphia, and the Northeast. n Multi-family’s investment star . . . continued from page 27A
Contact: Scott Butler 910 Harvest Drive, Blue Bell, PA 19422-0765 • 610-260-6000 • www.kaplaw.com Other Offices: • Cherry Hill, NJ 856-675-1550 • Philadelphia, PA 215-567-3120 Kaplin Stewart A t t o r n e y s a t L aw Real estate law from the ground up. Experience Counts. Count On Us.
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