Florida Real Estate Lawyer Blog

The International Council of Shopping Centers (ICSC) RECon 2012 conference represents the largest global retail real estate convention in the world, and I am honored to have been selected by ICSC to serve as the facilitator/moderator for the Legal Special Industry Group Forum at the event on Sunday, May 20, at the Las Vegas Convention Center. This and other events from ICSC represent the premier professional development programs for retailers and commercial real estate professionals. They help to keep the retail industry's professionals informed about the latest legal and business matters affecting the industry, and every year I look forward to taking part in as many of these programs as I possibly can.

Earlier this year, I had the honor of serving as the Dean of the College of Law at the International Council of Shopping Centers' (ICSC) University of Shopping Centers in Philadelphia, where I presented the course titled "Anatomy of a Lease." For RECon, I will be moderating the event's forum on shopping center law and coordinating a roundtable discussion with a panel of experts. For additional information and online registration, visit www.icscrecon.org.

Founded in 1957, the International Council of Shopping Centers is the global trade association of the shopping center industry. Its 60,000 members in the U.S., Canada and more than 80 other countries include shopping center owners, developers, managers, marketing specialists, investors, lenders, retailers and other professionals as well as academics and public officials. Additional information on the organization and the upcoming conferences is available at www.icsc.org.

In my latest video I discuss how commercial landlords are now reaching out to end users that were not only shunned in prior times, but actually even those that were prohibited. Prohibited-use provisions had been considered part of the boilerplate provisions and were not subject to much negotiation, but today some uses that have long been prohibited are being reconsidered as part of traditional shopping centers. Click below to watch my brief video that discusses several specific types of tenants that are no longer being prohibited by many shopping centers, and scroll down to read my article on the topic posted on November 21, 2011.

My latest video focuses on several factors that create additional intricacies for a landlord in leasing to a franchisee. Most franchisors will require that the landlord enter into a franchisor generated addendum, with typical provisions addressing default notices, cure rights, right of entry after default or termination, use and restrictive covenant issues, assignment and recapture provisions, and the ability to mortgage property equipment, among others. In addition, the landlord should ask to see a copy of the fully executed franchise agreement in order to verify that the term of the agreement is longer than the term of the lease. Another critical element is determining what defaults and termination rights may exist under the franchise agreement. All of these may influence what the landlord is willing to do in its lease, and what it is willing to negotiate.

Click below to watch my brief video to learn more about these and other unique aspects of leasing to franchisees, and scroll down to read my article on the topic posted on Nov. 14, 2011.

A recent appellate ruling has important ramifications for developers as they navigate the issues of the delivery of condominium units after the completion of construction.

In the case of Tranquil Harbour Development, LLC v. BBT, LLC,the developer obtained a certificate of occupancy for a condominium unit but did not record the declaration of condominium with a surveyor's certificate of substantial completion until several months later. The contract for the sale of the unit in question contained a covenant that the developer would complete the unit within two years. However, the delay between the receipt of the certificate of occupancy and the recording of the declaration caused the developer to pass the two-year mark.

This delay proved to be very costly for the developer. When the buyer refused to close based on a breach of the covenant to deliver within two years, the developer argued that the date of the issuance of the certificate of occupancy should determine that it had met its obligation. Unfortunately for the developer, the First District Court of Appeal found that under Section 718.104, Florida Statutes, the surveyor's certificate of substantial completion had to be recorded for the unit to be conveyed to a buyer. Until it was recorded, the unit was not eligible for delivery, and therefore the developer had not met its two-year delivery obligation.

With so many condominium unit sales being contested in the aftermath of the meltdown in the real estate market in South Florida, this case illustrates the importance for developers to work closely with experienced legal counsel to ensure that all of the required notices, certificates and documentation are filed and recorded on a timely basis in accordance with Florida law.

Last September my colleague Fern Musselwhite wrote an article for this blog on the importance of using clear and unambiguous co-tenancy clauses in shopping center leases. Her article discusses a recent New York case that illustrates how a lack of clarity in a co-tenancy clause can be devastating to a landlord. The case hinged on a clause requiring the leasing of a space in the shopping center to a "national retailer." Because the term "national" was not defined in the lease, the court deferred to the definition in Black's Law Dictionary, which it quoted as "nationwide in scope." It ruled in favor of the tenant that BJ's Wholesale Club did not meet this requirement in the lease, as the retailer does not maintain any stores in the western half of the country.

To learn more about this issue and why it has become imperative to use clear and unambiguous co-tenancy clauses in shopping center leases, click below to watch my brief video on the subject and scroll down to read Fern's article from September 19, 2011.

Last spring, the case of Ruehl No. 925, LLC v. State of Florida, Dept. of Revenue received a great deal of attention in commercial real estate circles in Florida. It raised the issue of whether a tenant's improvement costs should be taxed as if they were rental payments. Ultimately, the court in this case was not willing to equate the cost of improvements with taxable rent, and the decision was recently upheld on appeal.

The trial court found that the tenant in this case was not required to spend a specific amount of money on the improvements or complete them over a particular period of time. The court also found no evidence that the rental structure in the lease was affected by the tenant's improvements. Rather than comparing the improvement costs to rent, the court found them to be "simply an expense which the tenant had to incur to get the premises in a condition that would be suitable for its intended purposes."

Following a recent appeal, the First District Court of Appeal affirmed the trial court's decision that the costs of the tenant's leasehold improvements were not part of the rent due under the lease and therefore were not subject to sales tax.

If this is the final resolution of this issue, it is certainly a positive decision for landlords and tenants in Florida who are negotiating commercial leases and the costs of building out their spaces. The recession and slow pace of recovery have taken a heavy toll on the commercial real estate market in the state, and the additional taxes on the cost of tenants' improvements and renovations would exacerbate the financial challenges facing the industry.

Our Florida real estate lawyers will continue to monitor this appellate ruling, and if there are any further developments in the case we will cover it in this blog. To ensure that you receive all of our future articles, submit your e-mail address in the subscription box at the top of the blog.

Our firm is a proud sponsor of the upcoming International Council of Shopping Centers (ICSC) South Florida Hispanic Markets Event, which will focus on the importance, dynamics and impact of the Hispanic market on South Florida retail and real estate. I have had the honor of serving on the Program Planning Committee for this event, and my fellow committee members and I are very pleased to have César Melgoza, the CEO of Geoscape, as the keynote speaker, plus a panel of representatives from Burger King and Churromania.

The speakers and panelists will discuss the concept of "Hispanicity" and how retailers can connect with this growing segment of the U.S. population, which now stands at approximately 17 percent nationwide and accounts for approximately half of consumer spending growth. They will also focus on unique considerations in site selection and the real estate process in markets with a high concentration of Hispanics.

This event will take place from 5 - 8:30 p.m. on Thursday, March 1, 2012, at the Hyatt Regency in Coral Gables (50 Alhambra Plaza), and it will include a networking reception. Click here to learn more, download the brochure and register online.

The International Council of Shopping Centers' University of Shopping Centers is an advanced level educational program serving the retail real estate and shopping centers industry worldwide. Its mission is to elevate each attendee's level of knowledge of the industry by learning directly from experienced professionals.

I have been granted the honor of serving as the Dean of the College of Law for Non-Lawyers at the next ICSC University of Shopping Centers, which will take place March 5-7, 2012, on the campus of the Wharton School of the University of Pennsylvania in Philadelphia. My course will be titled "Anatomy of a Lease," and it will cover how to read and craft lease clauses, interpreting provisions for enforcing lease requirements for both tenants and landlords, identifying tenant and landlord costs impacted by lease clauses, the key provisions and business points affecting the lease, and new sustainable provisions for construction and operations that address energy use and minimize greenhouse gases.

The International Council of Shopping Centers is the global trade association of the shopping center industry with more than 60,000 members in the U.S., Canada and over 80 other countries. I have been very active with the organization for many years, and I regularly serve as one of its featured speakers at its educational conferences and seminars throughout the country.

Click here to learn more about this event, get the brochure and register online.

Florida's lien law was revised this year to clarify the right of a contractor to lien the interest of a landlord when the landlord's tenant contracts for improvements. Under the previous version of Section 713.10, Florida Statutes, a landlord was able to avoid having its real property interest liened if it followed certain recording requirements. If there was a concern with a particular lease, a landlord could record a short form of the respective lease. If the lease prohibited a lien attaching to the landlord's interest, the landlord then would be protected. If the landlord was preparing to lease several spaces in one building, the landlord could record one notice covering the entire building. The landlord again would be protected so long as the specific lease language prohibiting liability was included in the notice and the landlord represented in the recorded notice that all leases at the property contained this prohibition.

Under the 2011 changes to the statute, the recording of the notice or short form of the lease must occur before a notice of commencement is recorded. If a contractor has any concerns that its lien would not be permitted, under the revised statute, the contractor may serve written demand on the landlord for a copy of the lease provision which prohibits the liening of the landlord's interest. If the landlord does not provide the requested provision within thirty days, or if the landlord provides a false or fraudulent copy of the lease provision, it loses the statutory protection so long as the contractor has complied with the statute and has no actual notice that the landlord's interest was not subject to lien.

A recent Florida case before the Fourth District Court of Appeal highlights the protection afforded to a landlord who followed the recording requirements prior to the 2011 statutory revisions. In MHB Construction Services, L.L.C. v. RM-NA HB Waterway Shoppes, L.L.C., the landlord had properly recorded a notice prohibiting a lien against its interest. Two years later, the landlord entered into a lease with a tenant, who thereafter contracted for improvements to be made to the leased space. Before the contractor began work, the landlord recorded a notice of commencement.

The contractor argued that the recording of the notice of commencement nullified the landlord's protection under the notice of lien prohibition. The court disagreed, finding that the purpose of the notice of commencement was to provide proper information of record so that the lienor could complete a notice to owner. The court also refuted the contractor's arguments that a lien could attach to the landlord's interest because the tenant improvements were required and funded by the landlord. The court noted that not only did the lease not require the improvements, but it required the tenant to obtain the landlord's consent before any improvements were made. In addition, although the landlord contributed a tenant improvement allowance toward the cost of construction, the allowance was less than ten percent of the entire construction budget and was contingent on the tenant obtaining a final release of lien from the contractor. Given these facts and the recorded notice of lien prohibition, the court determined that the contractor could not lien the landlord's interest. For the general contractor's perspective on this decision, click here to read Nicholas Siegfried's article on the significance of the ruling in our construction law blog.

If you own a property against which you recorded a notice of lien prohibition prior to the 2011 statutory revisions, at least one jurisdiction has recognized that you remain protected under the statute. Our real estate and construction lawyers work closely with our clients to enable them to protect their properties against improper liens and claims, and we encourage commercial real estate owners and managers to contact us with any questions regarding the safeguarding of their properties.

When the real estate market was booming a few years ago, everyone was looking for an edge, and the interest in sustainability and green building methods began to take off. By spending a little more in construction, developers were able to market a project as environmentally friendly and achieve a long-term reduction in operating costs, which created considerable added appeal for their properties.

Even as lenders have tightened up financing and developers have canceled or scaled back projects over the last few years, green building has managed to stay on the radar. Some developers have been reluctant to add any costs to projects, even if minimal, as the need to shrink construction budgets has been a primary focus. Others, however, have seen that the return on investment is worth the additional cost, particularly if they plan to hold a building for any significant length of time.

Although Florida has not been at the forefront of green building, several markets in the state are starting to catch up. A recent article in the Tampa Tribune explained the impact of the sustainability culture on the Tampa Bay market.

In addition, a recent report prepared for the Energy Foundation shows the potential for billions of dollars in financing opportunities associated with sustainability.

As the real estate market continues to rebound from the economic downturn, we encourage our clients to consider all potential financing resources and concepts for development. As Gerald M. Stern said in The Buffalo Creek Disaster: "Sometimes you do well by doing good."

The recent economic downturn has caused a seismic shift in the retail use landscape. To fill vacant space, landlords are reaching out to end users that were not only shunned in prior times, but actually even those that were prohibited. Prohibited-use provisions were considered part of the boilerplate provisions and were not subject to much negotiation. Today, some uses that have long been prohibited are being reconsidered as part of traditional shopping centers.

Existing tenants are being asked to waive use restrictions to allow some of these long prohibited uses. Two of these are schools and churches. With the large number of big box closings, landlords began to see these large spaces, which are often nearly next to impossible to subdivide into smaller retail spaces, as viable for school/church use. The fear was that the parking spaces would be taken up for long periods of time by people not visiting stores. Recent history has proven otherwise.

Another typical prohibition was for bowling alleys and billiards clubs. The same parking rationale applied, as well as a fear that it would attract the wrong clientele to the retail center. But new bowling alleys and billiard parlors have gone "upscale." High-quality music systems, televisions, lights and upscale food and liquor service have given these retailers an almost night club-like ambiance and mystique, which has made them attractive to landlords and the other tenants.

Traditional parking issues remain, and the solution is generally the creation of "exclusive" parking fields for the retailer or the construction of structured parking to increase the parking space count for the center.

The next prohibited use to fall by the wayside is the "massage parlor." No need to go into detail as to why this was a typical prohibited use. But this prohibited use was brought to the forefront by the rollout of legitimate day spa type operators, such as Massage Envy. The chain has been successful because it offers very reasonable prices for traditional Swedish, deep tissue and other massage treatments which are typically offered by larger resort spa providers.

So, the bottom line is, review the prohibited use clause and craft a reasonable proposal for existing tenants with the information that they need to evaluate when seeking to waive an existing prohibited use. In addition, consider amending your current lease form to provide more flexibility in the future for similar situations.

Our real estate attorneys have extensive experience with all aspects of commercial lease agreements, and we write about these and other important issues affecting the Florida commercial and residential markets on a regular basis in this blog. We encourage industry followers to submit their e-mail address in the subscription box on the right in order to automatically receive all of our future articles.

Franchise companies are one of the largest and most successful areas in present day retail. There are several unique considerations which create additional intricacies for a landlord in leasing to a franchisee.

An immediate benefit that adds value and recognition to the retail center is the value of an established trade name and brand that is associated with the new user. Additionally, franchisors require that franchisees pass a rigorous vetting process, which usually means that if the franchisor has approved the franchisee, there should be some meat on that bone, especially if this franchisee already has other stores under operation.

That being said, the landlord must understand that a franchisee business is its own independent operation that simply has licensing rights to the brand and only has a contractual relationship with the franchisor company. The two are totally separate entities, and unless the premises are being leased by the franchisor entity itself, the landlord should not expect to receive any corporate guaranty for the lease obligations from the franchisor, nor believe that it has any relationship with the franchisor. In fact, most franchisors will require that the landlord enter into a franchisor generated addendum that in some cases is beneficial and in other cases is prejudicial to the landlord.

Typical provisions in the addendum should address default notices, cure rights, right of entry after default or termination, use and restrictive covenant issues, assignment and recapture provisions, and the ability to mortgage property equipment, among others. There is no exact magic to the addendums, and they vary from franchisor to franchisor.

They are also subject to negotiation.

The landlord should ask to see a copy of the fully executed franchise agreement. There are number of reasons for this, the most important being the verification of the fact that the term of the agreement is longer than the term of the lease. Another critical element is determining what defaults and termination rights may exist under the franchise agreement. All of these may influence what the landlord is willing to do in its lease, and what it is willing to negotiate.

Our real estate attorneys have extensive experience in negotiating lease agreements on behalf of both landlords and tenants in franchise situations, and we maintain offices in Miami-Dade, Broward and Palm Beach counties. We write about important real estate law issues in our blog on a regular basis, and we encourage industry followers to add their e-mail address in the subscription box on the right in order to automatically receive all of our future articles.

The International Council of Shopping Centers is the global trade association of the shopping center industry with more than 60,000 members in the U.S., Canada and over 80 other countries. I have been very active with the organization for many years, and I regularly serve as one of its featured speakers at its educational conferences and seminars throughout the country.

In three weeks on Friday, Nov. 4, I will have the privilege of co-leading the next ICSC Executive Learning Series program at the organization's Lifelong Learning Center in New York City. It will focus on "The Changing Economics of a Lease," and I will be discussing the strategies and tactics that landlords and tenants should use in negotiating monetary provisions, including minimum and percentage rent clauses, security deposits, operating costs, real estate taxes and merchants/marketing fund payments. I plan to lead the participants through an analysis of the key elements of each of the lease provisions and their monetary impact interrelationship with the net return to the landlord, as well as to the tenant. In addition, I will distribute and dissect sample clauses in order to analyze their strengths and weaknesses.

Click here to learn more about this event, get the brochure and register online.

As I covered in Part 1 of this article in my blog post from Sept. 9, pop-up stores have become a permanent component of the retail landscape. These retail stores of a strictly temporary nature, most typically Halloween or Christmas decoration stores, have evolved into what is now a sophisticated and carefully planned marketing and branding concept.

For shopping center owners, pop-up stores seem like the perfect solution to retail vacancies. At the same time, retailers also use them for testing new markets or concepts as well as for promoting brand loyalty. Toys"R"Us, for example, used them extensively during last year's holiday season.

Most temporary store transactions are structured as a license agreement and not as a lease. This is because it simplifies the negotiation process for the landlord and provides them with more flexibility to remove a tenant if it breaches the agreement.

For a retailer that is planning on opening a pop-up store during the holiday season, careful steps should be taken to verify that the signage for the store will not be an issue. Branding is one of the major reasons cited by retailers in their use of pop-up stores. They want customers to return to one of their permanent locations, or they may even want to actually retain the space after the holidays and enter into a long-term lease for the location. Therefore, appropriate review of the signage clause is necessary.

The next major issue is the use clause. The tenant needs to make sure that there are no exclusives in any existing lease that would prohibit or limit the intended use of the premises. A retailer could find, after a substantial investment in merchandise and employee costs, that it cannot use the premises as intended. Tenants should not blindly rely on the landlord to make sure that the use is permissible. Appropriate research should also be conducted to verify that the tenant may obtain all required licenses and permits to operate in the premises. Most pop-up store license agreements state that the property is being taken "as-is." If there have been building code changes or other changes to laws that make the premises not in compliance, the tenant may not be able to obtain an occupational license from local authorities to open and operate the premises. Remember that pop-up stores are filling vacant space, so it is important that the tenant find out how long the space has been vacant and whether it is code compliant.

Last but not least is to plan ahead. If there is a possibility that the tenant will want to keep the space for a longer term, make arrangements to stay in the space while a new lease is negotiated. We do not encourage tenants to keep long-term possession of stores under a license agreement. While it might seem like a possible alternative, negotiate a formal lease agreement if the tenant intends to stay beyond the short-term life of a pop-up store agreement.

Our real estate attorneys in South Florida have extensive experience in the structuring of license agreements and leases for retail space on behalf of both landlords and tenants, and we regularly write about these types of issues in this blog. We encourage industry followers to enter their e-mail address in the subscription box on the right in order to automatically receive all of our future articles.

Last month I wrote an article for the blog on the reasons why commercial landlords should prefer letters of credit over cash for the security deposits from their tenants. This has become especially true in today's economy, with so many businesses that are having trouble staying afloat.

The problem with a cash security deposit posted by a tenant under a lease is that it is considered to be property of the tenant's estate in bankruptcy proceedings, so the funds are subject to the automatic stay provisions of the Bankruptcy Code. That means that if the tenant files for bankruptcy, the deposit will not be able to be accessed by the landlord without court approval, and often times the court will not allow access at all.

To learn more about how landlords are using letters of credit in order to avoid this risk, click below to watch my new video on the topic and scroll down to read my article posted on August 15.