Prohibited Uses in the Modern Shopping Center Era

On behalf of Kaplin Stewart Meloff Reiter & Stein, P.C. posted in on Oct 28, 2016.

The modern shopping center just ain’t what it used to be. Community shopping centers of yester-year were stocked with, perhaps, a grocery store, and then various merchants selling hard and soft goods. Power centers had their pick of multiple tenants for each of the various categories of retail, such as books, electronics, home improvement and office supplies. Today, while grocers still anchor community centers, restaurants and service uses dominate the balance of the tenant line-up. In the declining number of power centers being developed, many of the big-boxes have significantly cut growth, and some have gone by the wayside, leaving only one tenant in a category.

So, then who is leasing space in our shopping centers? Most of the new tenants are those that sell goods and provide services that you can’t buy online. Restaurants, health clubs and medical uses are the big space-takers in the current market. These users have provided a great boost to landlords needing to fill their spaces. However, the complication is that these tenants are found on almost every prohibited use list that you find in leases with tenants that have the cache to impose these prohibited uses. The new-blood tenants are viewed either as parking hogs or not a typical shopping center co-tenant.

Big box retailers and supermarkets, who are the tenants that impose prohibited use restrictions, are pretty smart and have a good instinct for self-preservation. They know that a dark shopping center does not help, so it is possible to draft prohibited use clauses to protect the parking field and integrity of the center, while at the same time providing a landlord flexibility to lease its center.

Restaurants have to be permitted. If parking is an issue, designate areas where restaurants are not permitted, and, if necessary, differentiate between restaurants that do and don’t overly burden parking. A quick-service restaurant requires much less parking than a 6,000 square foot casual dining restaurant with a liquor license.

Medical uses also need to be permitted. “Doc in a box”, dental offices and urgent care centers are moving from office space to retail space. Likewise, “service retail” should not be caught in a restriction on “non-retail” uses. Banks, hair salons, nail salons, stock-brokers, weight loss centers and similar uses, while not selling goods, provide services to the public that draw traffic to shopping centers. If a big box tenant wants some limit, then it is reasonable, and common, to see a limitation on the amount of medical and service retail permitted (such as, not more than “x” percent of the shopping center to be used for these uses).

Lastly, health clubs and gyms not only lease space, but they lease large chunks of space. Health clubs are presumed to take significant parking for long periods of time. However, the reality is that health clubs are busy at times when other retailers aren’t; early mornings and later in the evening. However, to assuage the concerns of retailers, health clubs can be limited to designated areas, or landlords can agree to locate the front entrance of a health club in a location that promotes parking away from other retailers’ primary parking fields.

Retailing is changing, but with careful planning everyone can get live together in harmony.

Jeffrey L. Silberman, Esquire is a principal of Kaplin Stewart law firm and a member of the Real Estate Transactions Department. Mr. Silberman concentrates his areas of expertise in real estate transactions, particularly commercial and retail leasing, acquisitions and dispositions of real property and financing.