Commercial Investment Real Estate November/December 2017 | Page 20

LEGAL
BRIEFS
Anchors Away
A landlord can mitigate damages if a major tenant closes shop.
by Dan Villalpando
W
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November | December 2017
to a shopping center and may not have agreed to an operating
covenant in their leases.
Negotiate for Flexibility
Without an operating covenant in the lease, however, the lease
terms may provide other options. For example, the owner may
have the right to recapture the anchor tenant’s premises by ter-
minating the lease and taking back the space.
Such a resolution allows the owner to market and fill the vacant
space with one or more tenants. Of course, if the anchor tenant
is required to continue to pay rent following a closure, the owner
receives some solace through monthly payments. However, a
dark space in excess of 50,000 sf may have a chilling effect on
the overall success of a shopping center, so the owner may prefer
to end the lease and regain control of its space.
Absent an operating covenant or a recapture provision, a land-
lord may want to negotiate directly with the anchor tenant for
a buyout of its lease. Such a resolution may make sense for both
COMMERCIAL INVESTMENT REAL ESTATE
ith the ever-changing face of retail development
adversely affecting traditional anchor tenants,
such as Macy’s, J.C. Penney, and Sears, shopping
center owners are facing unforeseen challenges.
As some anchor tenants decide to shutter stores, many shopping
center owners may be left with large, vacant spaces, often at key
entrance points to their malls. However, shopping center owners
have the ability to mitigate the negative effect of a closure.
When shopping center owners receive word that an anchor
tenant is scheduled to close its doors, they should first review the
relevant lease and any related documents, such as covenants, con-
ditions, and restrictions. For example, contractually the anchor
tenant may not be allowed to close for business during the term,
which immensely increases the owner’s bargaining power.
An unauthorized closure would likely be deemed a breach of
the lease and may entitle the owner to damages through acceler-
ated rent. Many anchor tenants, however, have the upper hand
in lease negotiations because of the foot traffic their stores bring