Firm managing shareholder Oscar R. Rivera authored an article that is featured in the online edition of today’s Daily Business Review, South Florida’s exclusive business daily and official court newspaper, and will soon be appearing in the “Board of Contributors” page of the print edition. The article, which is titled “Potential Pitfalls to Avoid with Restrictive Clauses in Outparcel Sales, Developments for CRE Owners,” focuses on the growing trend of the carving out of parts of shopping centers and mall parking lots to create “outparcels” for stores, restaurants, and even multi-family apartments. He notes that the growth of online shopping and curbside pickup at major big-box retailers and grocery chains has diminished the need for vast parking fields for in-store shoppers, and property owners are trying to tap into the growing appeal of mixed-use sites that provide a live, work and play experience. Oscar’s article reads:
. . . However, for commercial real estate owners hoping to create and sell an outparcel for further redevelopment, or even acquire an existing outparcel owned by others for their own redevelopment, there is a significant potential hitch that must be addressed prior to closing. This issue requires the utmost care and attention, and is oftentimes overlooked, only to cause potential snags down the line.
The application of a property’s current restrictive covenants with existing tenants in outparcel deals can become a challenge depending on the nature of the plans for the new or redeveloped site. CRE owners can never lose sight of the fact that the new store/restaurant category or other planned use for a newly created outparcel being marketed and sold to a third party should not run afoul of the restrictive use clauses contained in the lease agreements with their property’s existing tenants. Otherwise, they can expose themselves to serious legal liability if the new enterprise planned for the outparcel is in a category that is a protected exclusive for any of the current tenant(s) at the property or a prohibited use that is forbidden by existing leases.
Therefore, always in close consultation with experienced CRE attorneys, owners need to address any such restricted uses that may be in play with all the parties prior to finalizing any transaction. The most efficient and effective way to do so would be to make the outparcel buyer aware of all the existing exclusives and restricted uses, and then negotiate their inclusion in the sales contract as an exhibit and as a covenant running with the parcel being purchased. The latter causes these exclusives and restricted uses to be a title burden that runs with the land and binds not only the current owner, but also all future owners and tenants on the outparcel.