As retail entertainment continues to evolve and become a greater factor in the shopping center industry, landlords will need to be prepared for some of the positive and negative impacts that a retail entertainment tenant will have on shopping center operations. Because most shopping center lease forms have been prepared for use with traditional retail tenants, landlords should consider whether their existing lease forms will be adequate for use with retail entertainment tenants. Landlords should be prepared to negotiate everything from rent to design and CAM to the use clause.
Rent/Tenant Improvement Costs. Landlords often are willing to accept lower base rent from retail entertainment tenants in exchange for the increased customer traffic they generate and the resulting increase in the percentage rents generated by other tenants. However, lower base rent may be met with equally lower percentage rent if the definition of gross receipts is not specifically adapted for entertainment tenants.
For example, the definition of gross receipts for a movie theater complex in a landlord lease form might provide for the averaging of weekly gross admissions receipts to avoid disproportionately high receipts for short periods. It may include gross receipts generated by "4-wall" deals and exclude gross receipts from video games and the sale of refreshments and merchandise.
The definition of gross receipts for a themed restaurant might provide for the inclusion of gross receipts generated by private parties and events and the exclusion of gross receipts from video games and the sale of licensed merchandise. In addition, because entertainment tenants have unique space requirements, landlords may face higher tenant improvement costs at both lease commencement and lease expiration.
CAM. A shopping center that adds one or more retail entertainment elements will most likely see a significant increase in its CAM costs due to the increase in traffic. Yet, because there is a great demand for the best retail entertainment tenants, some strong retail entertainment tenants will seek to be treated like an anchor and have their CAM contribution limited to a fixed annual amount.
Hours of operation/security/parking. Retail entertainment tenants usually have extended hours of operation and generate the greatest traffic at night or on weekends. As a result, during these times, customers of traditional retail tenants often have problems finding parking. Certain types of retail entertainment tenants attract more teenagers and children, which can significantly increase security and insurance costs.
In addition, retail entertainment tenants often will seek the right to host their own premiers, promotions and events within their tenant spaces. Landlords should ensure that retail entertainment leases require the tenant to provide adequate security and parking for such events, at the tenant's sole cost and expense; prohibit the use of the common area without the landlord's consent; and limit the frequency of such events.
Use/exclusives. A retail entertainment lease should specifically define the types of uses that the retail entertainment tenant will be permitted to operate within its space. Because of constantly changing technology and the nature of the entertainment business, a retail entertainment tenant will want maximum flexibility with respect to its tenant space and may seek the right to operate any use that is a "technological evolution" of the current use.
However, an imprecisely worded or overly broad use clause could result in a loss of the landlord's flexibility in maintaining an appropriate tenant mix or result in the violation of another tenant's exclusive.
Signage. Signage, location and visibility are especially important to retail entertainment tenants. For example, many retail entertainment tenants will only agree to use their standard signs and logos, and they will want such signs and logos to be as visible as possible.
Landlords should examine their existing lease language, sign criteria and local laws well in advance of seeking a retail entertainment tenant in order to ensure that the landlord will be able to grant the signage rights that will be required by such tenant.
Merchants association/promotional fund. Retail entertainment tenants often will balk at making a contribution to a merchants association or a promotional fund because these tenants generate traffic for the other tenants of the shopping center and spend a great deal of money on marketing and promotion.
William H. Jackson III is an attorney with Los Angeles-based Pircher, Nichols & Meeks.