Empowering Retail Landlords Amid an Industry in Transition

MIAMI—From Toys “R” Us to Winn-Dixie, national retailers are shutting down multiple stores in our region and across the country. Even successful retail chains like Starbucks tried unsuccessfully a few months ago to close its Teavana stores in malls across America. This trend can take a toll on landlords who suddenly see their property’s cash flow crippled and the value of their assets – at least for the short term – impacted. That is according to litigation attorney Steven D. Weber, with Miami-based Weber Law. GlobeSt.com recently sat down with Weber to discuss what landlords can proactively do to protect their properties and prevent some tenants from breaking their leases. Weber represents clients in state and federal courts on issues regarding commercial and residential properties, breaches of contracts, fraud, and other issues.

GlobeSt.com: How can a lease prevent a tenant from ceasing or changing operations before the lease expires?

Steven D. Weber: While there is no guaranteed way to prevent a tenant from ceasing or changing operations before a lease expires, a ‘continuous operations’ provision could require a tenant to continue operating its business even if it is financially unable to do so.  At the same time, a ‘use provision’ may attempt to restrict a tenant to using its space for a particular use.  Depending on how a ‘use provision’ or ‘continuous operations provision’ is worded, what court is examining the provision, and a variety of other factors, the provision may not be enforced as a landlord or tenant intended it.  As an example, a court has found in the past that there was no ‘continuous operation provision’ in a lease even though the landlord intended the ‘use’ provision to include a ‘continuous operations’ provision.  Among other things, it is important that any lease say what the party wants it to say when examining whether a lease can prevent a tenant from ceasing or changing operations before a lease expires.

GlobeSt.com: How could the recent outcome of the Simon Properties/ Starbucks’ Teavana lawsuit impact the retail industry?

Weber: In the recent case that Simon Property Group brought against Starbucks Corporation in Indiana state court, Simon sought a temporary restraining order and preliminary injunction seeking to compel Starbucks to operate its Teavana stores in over 70 Simon malls in 26 states.  The court sided with Simon.  This litigation will likely cause tenants and landlords in the retail industry to examine their existing leases and evaluate what their options are if faced with a scenario where a tenant wishes to cease operating in its space.  Landlords and tenants in the retail industry may also keep this litigation in mind when negotiating any new leases.  Tenants may seek to avoid continuous operations provisions, modify such provisions to mitigate the risk associated with them, or seek alternatives to such provisions, such as allowing the tenant to shutter its business but continue paying rent or such other contingencies that would allow them to go dark if needed.  In sum, the retail industry should take note of the Simon Property Group and Starbucks litigation and not be caught unprepared should they face a similar scenario.

GlobeSt.com: How can landlords better position themselves to win breach of contract lawsuits and other litigation as more retail tenants shut down their brick-and-mortar operations?

Weber: There is no doubt that commercial landlords may face more tenants seeking to cease operations or change use due to the pressures e-commerce is putting on traditional brick and mortar stores. Unfortunately, there is no guaranteed way to win breach of contract lawsuits or other lawsuits, related to e-commerce or otherwise. However, landlords may mitigate the risk of such litigation by being mindful of the scenario presented in the Simon Properties/Starbucks Teavana lawsuit and, of course, consulting with an attorney regarding their commercial leases. We have learned many lessons in the last two years, as e-commerce began to gain popularity and some retailers have been unable to adapt quickly enough to the changing times. Those lessons need to be reflected in a new generation of leases to be signed amid an industry in transition.