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LEASE LANGUAGE: Rethinking security

The September 11, 2001 terrorist attacks in New York and Washington, D.C., affected and changed our lives in many different and significant ways. As the walls of the World Trade Center came crashing down, one could hardly imagine the impact of these events would be so far reaching as to cause changes in the way commercial leases are negotiated and administered. It should come as no surprise that shopping center security has become an issue at the forefront of our minds and is a concern to landlords and tenants alike.

Security can be an issue in any lease transaction, although it currently seems to be more of a concern with respect to large, high profile projects, such as regional malls, projects containing underground or structured parking facilities, projects adjacent to or attached to landmark offices and buildings, and other projects where the threat of terrorist activity seems to be great.

Some of the more significant issues surrounding security include (1) whether or not the landlord has a duty to provide security, (2) at whose cost security will be provided, and (3) the adequacy of the security being implemented.

Whether or not a landlord is required, in the first instance, to provide shopping center security is a matter of state law and largely a function of common law principles. This means that a landlord's duty to provide security will not, in most cases, be clearly set out in specific laws, code sections and regulations. Instead, the existence of a duty will depend on the sometimes-ambiguous criteria established pursuant to reported judicial decisions in the particular state where the shopping center is located. Therefore, whether or not a landlord will be required to provide security will in large part depend upon the facts surrounding the need for security at the particular center and whether courts in the past found duties to provide security when faced with comparable facts.

As a general rule, courts have imposed duties upon landlords to provide shopping center security in situations where there was a history of criminal activity at the center in question; and if such activities would have been thwarted by the existence of security. It may also be possible for a duty to be imposed in situations where credible information is received, or there is a reasonable possibility, the shopping center in question may be the target of a future attack, terrorist or otherwise.

Regardless of whether a duty exists, some landlords will elect to provide security as a precaution. The form common area expense provisions of many in-line leases are drafted broadly enough to allow the landlord to obtain reimbursement for security expenses. Notwithstanding, it would be good practice for landlords to include in all future leases, broad, specific provisions providing for the reimbursement of security expenses. Particularly in today's climate and the obvious fears of virtually all Americans, landlords are unlikely to experience much resistance from tenants in expressly including such expenses as reimbursable common area costs. Furthermore, the newly discovered dangers brought to light by the terrorist attacks may result in new and more expensive security measures being implemented by landlords and, therefore, new and unexpected costs. As a result, it is important in those transactions in which common area expenses are capped, for landlords to negotiate the right to pass through 100% of the security costs incurred as “non-controllable costs,” not subject to the cap. Again, the resistance to such a position may be more limited in the wake of the September 11th disasters.

Whether or not a duty to provide shopping center security exists, to the extent landlords provide security, they must make sure to provide it adequately. What is adequate may depend upon the types and levels of security being provided at comparable projects. It is important to note even where no duty to provide security exists, if a landlord voluntarily elects to provide certain security measures, it may expose itself to potential liability in situations where the security provided is insufficient or otherwise inadequate.

As events unfold following the attacks, so too will the norms, practices and laws surrounding security at shopping centers.

Scott Grossfeld is a partner in the Los Angeles office of the law firm of Cox, Castle & Nicholson LLP and specializes in shopping center leasing and development.

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