How to Compromise on Permitting Non-Retail Uses in Shopping Center

Consider four forms of compromise.

For anchors and retail tenants with bargaining clout, the name of the game is drawing as many shoppers to the shopping center as possible. So, they’re apt to insist that the landlord refrain from renting to offices, educational facilities, and other non-retail tenants.

This demand conflicts with the landlord’s need to maximize the number and flexibility of its leasing options. While leasing to retail tenants may be the landlord’s first choice, it may not always be a realistic option, especially in a waning brick-and-mortar retail market. In this environment, mutually acceptable compromise on shopping center uses becomes not only desirable but essential for landlords and tenants alike.

Here are four forms of compromise arrangement to consider, either alone or in combination, and a Model Lease Clause you can adapt to implement them.

1. Limit Number of Permissible Non-Retail Tenants

You may be able to allay a tenant’s concerns by agreeing to lease to only a pre-determined number of non-retail businesses. The precise number of spaces at the shopping center that you can permit for non-retail use will likely be subject to negotiation.

2. Limit Types of Permissible Non-Retail Uses

Categorically excluding all non-retail uses may be overkill. There may be certain types of non-retail uses that your tenants will abide. For instance, attorneys suggest that banks and opticians are generally acceptable to most shopping center tenants. So, explore the possibility of carving out specific types of non-retail office uses rather than accepting a total ban on leasing to any and all office businesses.

3. Limit Space Permitted for Non-Retail Use

Another potentially effective compromise approach is to agree to a limit on the amount of space you can lease to a non-retail business. You can structure limits either as space for any particular non-retail tenant—for example, 5,000 square feet, and/or as the total amount of space in the shopping center that can be leased for non-retail use to any one or combination of tenants—for example, 20,000 square feet.

4. Permit Non-Retail Use Only in Specific Parts of the Shopping Center

It may also make sense to permit non-retail business in some but not other parts of the facility. While the dynamics will vary depending on how your shopping space is configured, non-retail use is generally an easier sell to retail tenants when it’s in a non-central location of the shopping center that’s well away from the areas that get the heaviest foot traffic.