Hunton Retail Law Resource

It’s probably painfully obvious to companies in the retail industry and beyond that the old paradigm of the retail shopping center is being permanently altered by e-commerce, as well as changing consumer preferences. As the old-guard stalwarts of retail begin to shutter stores or fold completely, it is up to both landlords and existing anchor tenants to adapt to the changing landscape, or risk prolonged periods of high vacancy.

One of the areas which can hamper efforts to re-tenant spaces are the restrictive covenants contained in both declarations governing shopping centers and in anchor leases, put in place with the justification that such concepts are not retail-oriented or are parking intensive. As consumers move towards a more experience-based retail experience (i.e., restaurants, entertainment and fitness concepts), landlords may find their hands tied by such restrictive covenants when it comes to leasing vacant spaces. In light of this, landlord’s should be reviewing their restrictive covenants both in declarations and leases any time a lease is being amended, modified or renewed which may contain leasing restrictions.

Careful attention should be paid to those restrictions that can affect leasing to post-e-commerce era concepts, such as restaurants and small format fitness centers, both of which are becoming an increasing share of retail centers. Unless these issues are tackled head on, landlords may find themselves with vacant spaces for extended periods of time, which harms traffic to the shopping centers and, consequently, traffic to existing tenants. Landlords may find that tenants may be more willing to play ball on dropping these restrictions if they come to the realization that extended vacancies harm tenants more than the parking issues that these restrictions are intended to protect against.