Protect Your Interests During Center's Redevelopment

March 19, 2012
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If you see changes to signage, common areas, or parking areas being made or construction starting at the center where you rent space, you may be in for a redevelopment of the property. While a redevelopment can work in your favor if these changes bring more foot traffic—such as if certain areas are reconfigured to make more space for shoppers, or if enlarged signs bring attention to your business—it can also present both short- and long-term problems. For example, will you have to close your business during peak hours due to construction? Will your heat or air conditioning be affected because of HVAC changes that must be made to accommodate the changes? Some businesses will be affected more than others, such as those selling food that must be kept at a certain temperature, and others will simply lose business during hours when the center isn’t operating because of the changes that are being made.

Carving out your rights when it comes to a redevelopment of the center is key. Require the owner to either continue providing services that you need during a redevelopment, or help you during the transition or in the event that you agree to terminate the lease due to a redevelopment. That’s because, unfortunately, sometimes an owner gets an offer it can’t refuse from a party that wants to redevelop the center in a way that won’t accommodate you as a tenant, or terminate all tenants and demolish the center for a new kind of property, such as a condo building. And in some cases, the owner could terminate your lease to redevelop the center.

That was the case in a Louisiana lawsuit where the owner wanted to demolish its center and replace it with a new one. The owner notified its tenants that it would terminate their leases to make way for the redevelopment. A shoe store tenant asked a court to issue an injunction to block the owner from terminating its lease, evicting the tenant, and demolishing the center. A federal court in Louisiana refused to issue the injunction. The court said that the injunction was not appropriate, because the tenant could be adequately compensated by a money award. Calculating the money award would not be a problem, because the tenant had a substantial sales history at the center and it was easy to quantify the cost of relocating the tenant to another space, noted the court.

Also, even with an injunction, the tenant would suffer financial harm. The evidence indicated that the owner and the city in which the center was located would suffer significant harm if the injunction were granted. The tenant was holding up a redevelopment project in which the city had invested $13 million. The city was expecting to get from the redeveloped center substantial tax revenue, more retail operations, and lots of new jobs for residents. Thus, “the economic harm to the community is a significant concern” that weighed in favor of denying the injunction, said the court [The Shoe Show of Rocky Mount, Inc. v. Palace Properties]. Look for a feature article about the key redevelopment rights tenants should negotiate in their leases in the April issue of the Insider.