Creative SolutionsCreatil'l Solutions is a hi-monthly feature.Send your creatil'e solutions to tbeEditor-In-Chief at smcevily@icsc.org.

THE PROBLEM-SOLVING TOOL FOR RETAIL LAW

RETAIL LAWSTRATEGISTVolume 8, Issue 10 - October 2008

Lease Extensions and Renewals:One and the Same?

Hoodies, Curfews AndLoitering: A Look AtCurrent "Mall Rules"TrendsAmanda DillardK&LGatesDallas, TX"N0 shirt. No shoes. No

setvice." "No food or bever-ages allowed." These are

long-used, universally familiar refrainsthat have generally garnered compli-ance ... and sometimes more creativeresponses. Consider the "fake sandals"available for sale on the Internet (fauxshoes have a portion that covers the topof your foot while the bottom of yourfoot remains bare) or shoe straps

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In this issueCreative Solutions 1

Lease Extensions and Renewals:One and the Same? 1

Commercial Developers in New JerseyMust Help Pay for AffordableHousing-Will Others Follow? .... 4

The Controversy Over ConsequentialDamages-Part 2 6

Case Briefs 10

Legislative News 11

Jacob P. CrockettSchottenstein, Zox & DunnColumbus, OH

Introduction

Itis not uncommon to read, even in asophisticated lease agreement, a pro-vision to the effect that 'Tenant shall

have one (1) option to extend the term ofthe lease for a renewal period of five (5)years." Such language is sufficientlycommon in that it may not even warranta second glance; however, some jurisdic-tions differentiate between a leaseextension and a lease renewal. In suchjurisdictions, the differences are subtle,but have the potential to impact theparties' expectations if extension andrenewal provisions are not given due careduring the lease negotiation and draftingstages. This article does not attempt toadvise you of any particular state law;rather, it attempts to advise you of theneed to be aware of the distinctionbetween lease extensions and leaserenewals in the law of the state of theleasehold interest.

In today's practice, attorneys typi-cally address the terms of a leaseextension or renewal thoroughly, and bytheir express terms supersede thepotentially significant impact that thecommon-law distinction had on leaseswhere the extension or renewal rightwas addressed in a brief and vaguestatement. Fortunately, as is the casewith much of commercial leasing,parties may-and in using best prac-

tices certainly will-provide protectionsin the lease agreement itself to reducethe risk that such a distinction mayimpose on the parties' rights.

Extension vs. RenewalMany jurisdictions do not draw a dis-tinction between extension and renewalbecause the differences are subtle-andfrequently unintended. Even in thosejurisdictions that draw a distinction,whether a provision calls for an exten-sion or a renewal is determined by theexpress terms of the lease agreementitself; the parties are, therefore, generallyfree to craft whatever terms they desire.

ExtensionA lease extension is typically considered apresent demise under which any indica-tion from the tenant of its election toavail itself of the right to extend operatesto give such tenant the right of the addi-tional term. Gross v. Clauss, 30 OhioCD. 393 (1915) This right requires vel)'little of a tenant, for frequently anextension right is exercised merely bythe tenant's act of holding over and con-tinuing to pay rent. In the case of a leaseextension, none (or vel)' few) of theterms of the lease change from theoriginal term to the extended term(changes weigh in favor of a renewal),and notice is typically not required of atenant. Because an extension is merely acontinuation of the original lease terrn-

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Continued From Page 1Creative Solutions

fashioned on the spot with the aid of aSharpie.

Recently, however, some retailers andcenters are testing new restrictions andmethods in the hopes of providing amore secure and pleasant shoppingexperience for customers while keepingaway "undesirables." Questions do arise,however, as to whether such policieswork as intended or go too far.

HoodiesWhile a shirt is de rigeuT in public estab-lishments, hooded sweatshirts-a.k.a.hoodies--have put some mall and storeowners on edge. The regulation ofhoodies is based, in part, on theanonymity they provide with the hoodup, obscuring distinguishing featuresfrom view by security personnel orcameras. In addition to providing for ananonymous exit, the hoodies may alsoprovide an easy hiding place for shop-

RETAIL LAw STRATEGIST

lifted goods or weapons. Hoodie regula-tions in malls, schools and elsewherehave ranged from a "no hoods up" policyto outright prohibition (while, ironically,allowing the retailers to continue to sellthem). Critics of anti-hoodie policiesbelieve that racial or social discrimina-tion may playa role in the enforcementof such policies, and that hoodies shouldbe left alone since they are simplyingrained in the casual fashion of today.

Curfews and Parental EscortParental escort policies usually go handin hand with a curfew or restrictedhours policy that allows teens andtweens in the mall only if they areescorted by an adult after a certainhour. One of the stricter policies seenrecently is a curfew disallowing visitorsunder the age of 18 after 2:30 p.m.,seven days a week, without parentalsupervision. Under such policy, minorsare allowed to visit the center in groupsof not more than four if they are accom-panied by the parent or legal guardianof at least one of the children. This is

one of the more extreme policies, withmost shopping center curfews in placeonly during evenings and/or weekends.

One implication of a curfew orrestricted hours policy is the handlingof teen mall employees under the age of18: Assuming they are allowed to workin the mall during curfew, will teenemployees be permitted in the mallduring their breaks? Or before or afterwork hours? Or during their days off?Another issue is enforcement as thecurfew hour approaches: Will unsuper-vised minors be required to leaveimmediately? Or will they be sent to adesignated area for pickup by parents?Are there adequate personnel to dealwith enforcement on a daily basis?

While centers that have imple-mented these policies boast reductionsin crime and increases in sales, someconsumers claim that the policies areenforced in a racially or socially dis-criminatory manner. If used at all, mallowners should ensure that such prohi-bitions are handled and enforced

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RETAIL LAvV STRATEGISTEditor-In-Chief: Stephanie McEvily, Esq.

Board of EditorsRandall S. Arndt Michael P. Catvalho, Esq. Martin A. Glazer Fred Kaplan Nancy RendosSchottenstein Zox & Carvalho & Associates, P.e. Coulston & Storrs Krasnow Saunders Comblath The Macerich Company

Dunn Co., LPA Marietta, GA Boston, MA Chicago, IL Excelsior, MNColumbus, OH

T. Daniel Goodwin Bonnie Larson-de Paz, Esq. Linda K. SchearMarty DenisBrian W. Blaesser Barlow, Kobata & Denis Gill Elrod Ragon Owen & Isaacson, Rosenbaum, P.e. Gregory Greenfield & Assoc.

Robinson & Cole LLP Chicago,IL Sherman, PA Denver, CO Atlanta, GA

Boston, MA Little Rock, ARJo-Ann M. Marzullo Richard Schermer

Dominic J. De Simone Buchanan Ingersoll PCWendy E. BookIer Ballard Spahr Andrews & Harlan 1. Greenman Posternak Blankstein &

Aventura, FLBlank Rome LLP Ingersoll, LLP Wormser, Kiely, Galef & Lund, LLP

Philadelphia, PA Philadelphia, PA Jacobs, LLP Boston, MA Howard SigalNew York, NY

Marie A Moore General Growth PropertiesDaniel S. Brennan Joseph S. Finkelstein Joseph Grignano, Consultant Sher Gamer Cahill Richter Chicago,ILDLA Piper Rudnick Gray Cary Blank Rome LLP Blakes Klein & Hilbert, LLC Joshua SteinChicago,IL Philadelphia, PA Toronto, Ontario New Orleans, LA Latham & Watkins LLP

Ann Peldo Cargile Martin E. Garza Harvey M. Haber, Q.c., LSM Carole Laude Pechi New York, NYLaude Pechi Law LLCBoult Cummings Conners & K & L Gates Goldman Sloan Nash Glen Ellyn, IL Jennifer Van Ness

Berry, PLC Dallas, TX & Haber LLP Sutherland Asbill & BrennanNashville, TN Toronto, Ontario Atlanta, GA

Copyright © 2008 by International Council of Shopping Centers. All rights reserved. Protected under Universal Copyright Convention aOO international copyright conventions. This publication may!lOtCe reproduced in whole or in port in ony form without wrilten permission from the International Council of 5lJOPpin!;l Centers. II is designed to provide accurate ond outhoritative infoonofionin regard to the subject matter covered. It is sold with the understanding thot the publisher is not engoged in reOOering legal, accounting or other professional services. If legal advice or otherexpert assistance is required, the services of a competent professional should be sought. The opinions expressed herein are those of the respective authors and nol those of the low firms, employ-ers or clients of the authors. These orticles discuss general legal principles and do not constiMe legal adVice regarding any speci~c situation or issue.

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THE PROBLEM-SOLVING TOOL FOR RETAIL LAW

Continued From Page 1Lease Extensions

but for an extended period of time-allof the lease's provisions will continue infull force and effect,

A lease extension can have interest-ing effects on the parties' rights andobligations, For example, if a landlord,by its action or inaction during theoriginal term, has waived the benefitsof some of the lease's provisions, suchwaiver may carry over into theextended term, Specht v. Stoker, 249S.w. 2d 794 (Ky. 1952)

RenewalOn the other hand, a lease renewal istypically considered a future demise,requiring the execution of a new lease.HLM Realty Corp. v. Morreale, 394Mass. 714 (1985) By executing a newlease, a renewal may be considered to bethe surrender of an old tenancy and theentering into of a new tenancy. See, e.g.,McHugh v. Knippert, 243 SW. 2d 654(Ky. 1951). Thus, contrary to the exam-ple above, a landlord's waiving of certainrights during the original term may notcarry over to the renewal term because anew tenancy has been created.

The difficulty with a renewal has tra-ditionally been the requirement thatthe parties enter into a new lease. Overtime, this requirement has varied froman absolute requirement that a newlease be entered into (and a tenant'shaving the right to compel a landlord toenter into such a lease), to the partiesmaking a notation on the original lease,to today's practice of choice -requiring notice from a tenant by acertain date of its election to renew thelease. Generally, if the tenant givesnotice of its election to renew the leasein accordance with the requirementsset forth therein, the "new writing"requirement will be satisfied.

A lease provision is likely to bedeemed to confer a renewal right if leaseterms are modified for the renewal

period. For example, if a lease providesthat the tenant's right to extend or renewthe lease will be subject to all of theterms and conditions of the lease exceptthat rent shall be at the then fair marketrental value for the demised premises,the process of determining rent willrequire the parties to negotiate a rentalamount, perhaps by each engaging anappraiser to determine such amount.Because negotiation is required, such aprovision is typically considered to granta renewal right, and the rental amount,

In the absence of a leaseprovision to the contrary,if the lease provides anextension right, the tenncan be extended merelyby the tenants holdingover and continuing

to pay rent.

once determined, should be set forth ina written document that is executed bythe parties.

The more the terms differ betweenthe original term and the renewaVextension period, and the more negotia-tion required, the more likely a leaseprovision will be deemed to confer arenewal right rather than an extensionright. Because an extension requires solittle of a tenant, an extension provisiongenerally favors the tenant, while arenewal provision favors the landlordbecause of the additional burdensplaced on the tenant-such as requiringnotice, a determination of rent or thelandlord's consent. The key for the realestate practitioner is to set forth specifi-cally in the lease agreement what will berequired of the parties and when thesame will be required.

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Why Does It Matter?Given the subtle distinction between aright to extend and a right to renew,and the fact that sophisticated partieswill adequately address such issues inthe lease agreement, the impact of sucha distinction is not typically great.Careless and thoughtless draftsman-ship, however, can result in unintendedconsequences.

HoldoverThe greatest impact of the extension!renewal distinction is manifest at theend of the original term. In the absenceof a lease provision to the contrary, ifthe lease provides an extension right,the term can be extended merely bythe tenant's holding over and continu-ing to pay rent. Straus v. Shaheen, Inc.,310 Mass. 646, 648 (1942) If the leaseprovides a renewal right, the tenant, byholding over, will be deemed a periodictenant or a tenant-at-will because thelease term has expired without havingbeen renewed. Therefore, if the leaseprovision is interpreted to grant an ex-tension right, a tenant who holds over atthe end of the term may be bound forthe entire extension term-a circum-stance that may not be desirable toeither party. A carefully crafted provi-sion will eliminate this risk and specifi-cally delineate which rights are grantedto the tenant and what happens, shouldthe tenant fail to exercise such rightsproperly.

Statute of FraudsIn those jurisdictions that consider alease to be a conveyance of an interest inreal property requiring a written agree-ment, the determination of whether theparties' agreement satisfies the require-ments of the statute of frauds maydepend on whether the lease provides fora renewal or an extension. Since anextension does not require a new lease(merely being a continuation of theoriginal lease), the statute of frauds issatisfied by the original lease (assuming

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RETAIL LAw STRATEGIST

Commercial Developers in New Jersey Must HelpPay for Mfordable Housing-Will Others Follow?

Tracy A. SieboldBallard SpahrVoorhees, NJ

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en New Jersey's Gov. Corzinesigned Assembly BillA-500 onJuly 17, 2008, sweeping afford-

able housing reforms went into effect inthe Garden State. Of particular interestto the shopping center industry is a newstatewide requirement for all non-exempt, non-residential developers topay a mandatory 2.5 percent develop-ment fee for the production of afford-able housing. This fee will not onlyincrease the cost of non-residentialdevelopment in New Jersey, but alsomay very well be a showstopper formarginal projects.

The concept of requiring developersto provide or fund affordable housing isnot new in New Jersey. In what is con-sidered the most famous and wide-reaching state constitutional responseto exclusionary zoning, the New JerseySupreme Court held that all New Jerseymunicipalities have an ongoing consti-tutional obligation to create a realisticopportunity of safe, decent housingaffordable to low- and moderate-in-come households. Southern BurlingtonCry. N.A.A. c.p v. Tp. of Mount Laurel,67 N.]. 151 (1975) (Mount Laurel I),Southern Burlington Cty. NAA.C.P. v.Tp. of Mount Laurel, 92 N.]. 189 (1983)(Mount Laurel II).

Affordable housing has increasinglybecome a universal "hot topic" with theenactment of various forms of inclu-sionary zoning legislation across theUnited States. Because of the growingneed for affordable housing nation-wide, other states or governmentalentities may feel pressure to emulateNew Jersey's approach by requiringnon-residential developers to assist in

housing their community work forcethrough a development fee.

Statewide Non-residentialDevelopment Fee ImplementedConcerned that burdensome affordablehousing regulations on non-residentialdevelopment threaten to impede thestate's economic development, NewJersey's Legislature recently enactedAssembly Bill 500, which implements aflat, statewide 2.5 percent fee on theequalized assessed value (true value) ofany new non-exempt, non-residentialdevelopments. New Jersey's Office ofLegislative Services estimates that thisfee will generate approximately $164million annually for the production ofaffordable housing statewide. This rep-resents a sizeable increase in the cost ofconstruction for non-residential devel-opment.

The bill includes numerous, yetnarrow, exemptions to the statewidenon-residential development fee,including houses of worship and prop-erty used for educational purposes. Thebill also exempts all parking lots orstructures, amenities made available tothe public, relocation or improvementsto non-profit hospitals or nursinghomes, projects within a delineatedurban transit hub, projects in urban-aid-eligible municipalities that are locatedwithin one-half mile of a platform areafor a light rail system, and projects con-sistent with a transit village plan.

The bill also does not apply to ap-proved non-residential developments ifapproval was pursuant to a GeneralDevelopment Plan, if the developer hasentered into a developer's agreementpursuant to a development approval, orif a redeveloper has entered into a rede-velopment agreement pursuant to New

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Jersey's redevelopment law. In all threecases, however, the exemption is prem-ised on the inclusion of a requirement inthe plan or agreement that the devel-oper will pay at least 1 percent of theequalized assessed value of the newdevelopment.

The development fee applies only tonew construction or additions. It doesnot apply to changes in or conversionsof use. The new provisions also ex-pressly exclude alterations, reconstruc-tion, renovations and repairs of existingstructures, the terms for which are de-fined under the applicable New Jerseyconstruction code regulations:1. "Alteration" means the rearrange-

ment of any space by the construc-tion of walls or partitions, theaddition or elimination of any door orwindow, the extension or rearrange-ment of any system, the installationof any additional equipment orftxtures and any work that affects aprimary structural component.

2. "Reconstruction" means any projectwhere the extent and nature of thework is such that the work areacannot be occupied while the work isin progress and where a new C/O(certificate of occupancy) is requiredbefore the work area can be reoccu-pied. Reconstruction may includerepair, renovation, alteration or anycombination thereof. Reconstructionshall not include projects comprisedonly of floor finish replacement,painting or wallpapering, or thereplacement of equipment or fur-nishings. Asbestos-hazard abate-ment and lead-hazard abatementprojects shall not be classified asreconstruction solely because occu-pancy of the work area is not per-mitted.

TIlE PROBLEM-SOLVING TOOL FOR RETAIL LAW

3. "Renovation" means the removaland replacement or covering ofexisting interior or exterior finish,trim, doors, windows or other mate-rials with new materials that servethe same purpose and do not changethe configuration of space. Renova-tion shall include the replacement ofequipment or fixtures.

4. "Repair" means the restoration to agood or sound condition of materi-als, systems and/or componentsthat are worn, deteriorated or bro-ken using materials or componentsidentical to, or closely similar to, theexisting materials.

In addition to increasing the costof construction, the bill is also prob-lematic because it ignores developers'vested rights in prior land use ap-provals. Developers are required to paythe development fee prior to the is-suance of a c/o. Accordingly, the billdoes not apply to non-residential devel-opments that received C/Os prior toJuly 18, 2008. However, any approveddevelopment not in possession of aClO by July 17, 2008, is now subject tothe 2.5 percent development fee.

Notwithstanding these deficiencies,the bill is still less onerous than the sup-planted regulations recently adoptedby the New Jersey COAH (Council onAffordable Housing), the state agencycharged with implementing the MountLaurel mandate. COAH's most recentregulations required non-residentialdevelopers either to construct, or tomake payments in lieu of constructing,affordable housing. COAH's currentmethodology purports to link actualproduction of affordable housing withmunicipal development and growth.This "growth share" approach requirednon-residential developers to provideone affordable unit for every 16 jobscreated. COAH based its projection ofnew jobs upon the gross square footageof the non-residential construction andthe particular use group (as defined bythe International Building Code) of thefacility being constructed.

For retail shopping centers, COAHprojected that one affordable housingunit is generated for every 9,412 squarefeet (sq. ft.) of shopping center space.So, for example, a 1 million sq. ft.shopping center development wouldgenerate a "growth share" of 95 afford-able units (1 million sq. ft. divided by9,412 equals 94.12 sq. ft.). Under thegrowth-share methodology, a munici-pality could require a shopping centerdeveloper either to construct the 95 af-fordable housing units, or pay an afford-

New Jersey has led thenation in inclusionary

zoning, producingover 40,000 newaffordable homes

and approximately15,000 rehabilitated

affordable homes sinceMount Laurel II,

able housing subsidy in an amountaveraging $160,000 per unit, or $15.2million. (COAH's regulations specifysubsidy amounts based upon regionallocation.) Collected fees are to be usedby municipalities to produce affordablehousing within the community

Alternatively, the COAH regula-tions permitted municipalities toforego the growth-share requirementsand simply require a non-residentialdeveloper to pay a fee of up to 3 percentof the equalized assessed value of theproposed development.

Municipalities choosing not to par-ticipate in the COAH process mustcomply with the Mount Laurel doctrinethrough their zoning powers permittedunder New Jersey's Municipal LandUse Law (N.J.S.A. 40:55D-J et seq.).

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Otherwise, they will be vulnerable tolosing control over local zoning inMount Laurel lawsuits. More than athird of the state's 566 municipalities donot participate in the COAH process.

As a result of the optional nature ofthe COAH regulations, non-residentialdevelopers were left to negotiate afford-able housing production requirements orapplicable fees, ifany, on a town-by-townbasis, adding as much as 10 percent tothe cost of a non-residential project. Thebill explicitly revokes any affordablehousing obligations on non-residentialdevelopments, requiring only that non-exempt, non-residential developers paythe 2.5 percent development fee.

The bill clearly encourages thecreation of affordable housing in thestate, and limits the power of N.J.municipalities to impose onerousaffordable housing fees or constructionrequirements on non-residential devel-opment. Only time will tell if the legisla-tion is successful in balancing thesesocial and economic interests.

Extending New Jersey'sResidential Development Feeto Other States and CitiesNew Jersey has led the nation in inclu-sionary zoning, producing over 40,000new affordable homes and approxi-mately 15,000 rehabilitated affordablehomes since Mount Laurel II. UtilizingN.J.'s experience, affordable housinglegislation has recently been imple-mented elsewhere in the United States.These new laws are not being adopted tocombat blatant exclusionary practices,which were the subject of Mount Laurel Iand Mount Laurel II cases, but are aresponse to escalating demands foraffordable and accessible housing.

PhiladelphiaIn Pennsylvania, the Philadelphia CityCouncil introduced legislation thatwould amend Philadelphia's zoningcode to mandate inclusionary afford-able housing. The inclusionary housing

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RETAIL LA", STRATEGIST

The Controversy Over Consequential Damages-Part 2

Martin A GlazerLeslie A GoemattCoulston & StorrsBoston, MA

The first part of this article examined whatconsequential damages are. The conclu-sion will address waivers and insurance.

Are Waivers of ConsequentialDamage Provisions Enforceable?

Generally, they should be. (Theusual caveat that everyjurisdic-tion may have its own rules,

whether by common law or by statute,applies.) The general test is whether awaiver of liability is unenforceablebecause it is unconscionable or againstpublic policy.Without getting too tech-nical, there are a growing number ofjurisdictions that will imply a warrantyof suitability in a commercial lease. Awarranty of suitability is an impliedwarranty that the premises are suitablefor their intended purposes. At leastone court has held that a tenant isbarred from recovering consequentialdamages in the face of a contractualwaiver shielding the landlord fromliabilityfor such damage. However, in ajurisdiction that implies a warranty ofsuitability in commercial leases, it ismore likely that such an exculpationclause will be considered as againstpublic policy because it voids thewarranty. In the cases that have consid-ered whether a waiver of this type ofliability should be upheld, the courtsalso look to the relative bargainingpower of the parties and whether or notthe parties were well represented.

However, in most jurisdictions, awaiver of liability for consequentialdamages, which is negotiated betweenan informed landlord and a well-repre-sented tenant, should be upheld. As adrafting note, if a lease contains

specific indemnities by a party for alldamages, as well as a general waiver ofconsequential damages, the generalwaiver should be drafted to explicitlytrump the specific indemnity.

InsuranceMost leases contain provisions thatexculpate a party forany damage that iscovered by the other party's insurance.The better clausesalsoprovideexculpa-tion where the loss could have beencovered by insurance. Physical loss totangible property is insurable, as isbusiness loss resulting from physicalimpairment.

Procuring insurance for businesslosses that arise out of a breach ofcovenant (such as breach of an ex-clusive) is a more difficult proposition.For that, there isprobably no insurancecoverage and, therefore, no exculpa-tion.

WaiverFrom the perspective of a landlord ortenant who is concerned about ex-posure to claims for lost profits orother indirect damages, a waiver ofconsequential damages has substan-tial value. As noted above, most land-lord leases contain such a waiver forthe benefit of the landlord. However,as also noted, there may be substan-tial risk of consequential damage inthe case of tenant default, so a mutualwaiver can be very beneficial to thetenant. Not surprisingly, the waiver isprobably of greatest value to majortenants. Where a small tenant's de-fault might be likened to a tree thatfalls in the forest that nobody hears, amajor tenant's default is more likelytohave costly consequences. For ex-ample, if a major tenant's failure topay rent causes a landlord to defaulton its mortgage and thus lose the

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property, the landlord might claimagainst the tenant for its entire busi-ness loss.

The "flip side" is that exposure to aclaim for consequential damages mayitself act as a substantial incentive to aparty to liveup to its obligations.

Absent a waiver of consequentialdamages, landlords and tenants mustbe very careful with respect to theclaims that the other party can pursuefor a breach. In that case, each partymay want to focus on havingliquidateddamages for certain claims in lieu ofexposure to all damages. For example,in the case of a breach of an exclusiveby a landlord, the landlord may want tolimit the tenant's rights to abatement ofrent (in whole or in part) and termina-tion. In the case of tenant holdover,thetenant may want to limit the landlord'srights to a claim for a multiple of rent inlieuof any other damages.

In any case, each party should makeit clear that, in certain circumstances,injunctive relief is appropriate. It issometimes very helpful to litigatorswhen they are seeking injunctive reliefif there is a specific provision to thateffect. In addition, specificand discretedamage provisions may be upheldwhere general exculpation clauses arenot upheld if the court is persuaded bythe spedficity that the clauses were aresult of legitimate arm's-length bar-gaining between savvyparties.•

MARTIN A. GLAZER is a Director atBoston'sCoulston & Storrs.He bringstohis practice over35 years of experience,focusingon general real estate matters,includingcommercialleasingandfmancingand development of commercial realestate.

LESLIE A. GOEMAlT was a summerassociateat Boston'sCoulston& Storrs.

THE PROBLEM-SOLVING TOOL FOR RETAIL LAw•

Continued From Page 5Helping Communities

bill would require residential develop-ers of more than 20 units to set aside atleast 10 percent of the units for low-and moderate-income families. The billpromises developers cost-saving incen-tives such as expedited permitting,building code modifications, provisionof land at nominal fees, and tax creditsand density bonuses. Developers areprovided the option of building theaffordable units on-site or at anothersite, or to pay into a city affordablehousing trust fund.

Philadelphia's affordable housingordinance requires the City Council toadopt another ordinance to implementthe zoning code changes. Opponents ofPhiladelphia's legislation emphasize thatthe bill will eliminate future large-scalehousing construction in the city becausethe incentives offered in the bill do notoffset the costs of high-rise construction.

BaltimoreIn June 2007, the Baltimore CityCouncil adopted an inclusionaryhousing ordinance that requires residen-tial developers to include affordable units

Continued From Page 2Creative Solutions

uniformly in a neutral, non-harassingmanner, not just against those ofcertain ethnic backgrounds, apparentsocial status or in certain types of dress.

Is Vivian Ward Shoppingor Loitering?Cue the Roy Orbison, cut to JuliaRoberts on Rodeo Drive in PrettyWoman, and ask yourself: Where is theline drawn between shopping (even if itis window shopping) and loitering? Forretailers, each visitor would ideally makea purchase during each and every visit to

in housing projects of 30 or more units.The Baltimore ordinance provides devel-opers of inclusiona!)' projects with majorpublic subsidies, including discountedland, PILOTs (payments in lieu of taxes),TIFs (tax increment financing), citygrants, loans or infrastructure above acertain percentage of project costs.Baltimore's Housing Commissioner isreviewing public comments received onits draft interim inclusiona!)' housing reg-ulations implementing the ordinance.

Wasbington, D.C.Likewise, in March 2007, Washington,D.C., passed an inclusionary zoningstatute, which requires an affordablehousing set-aside for developments ofat least 10 units in specified areas.Developers are to receive an increase indensity for the project. The DeputyMayor for Planning and EconomicDevelopment is currently working onthe implementing regulations.

ConclusionUntil now, with the exception of NewJersey, affordable housing legislationhas been directed toward residentialdevelopers. Development fees such asthose imposed by N.J.'s Assembly Bill500, however, may be a harbinger of

its shop. The reality, of course, is thatmany people visit in order to window-shop, gather information, compare,evaluate and (the retailer hopes) returnto make a purchase. Others may bethere simply to pass some time, withoutany particular purpose, but also withoutany bad intentions.

"No Loitering" rules receive plentyof criticism, as they present a difficultchallenge for mall owners, securitypersonnel and store employees walkinga fine line between abating a potentialdrag to the bottom line and offendingcurrent or future customers. Tradition-ally, malls have been designed andoperate to encourage people to linger

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things to come. In light of the continu-ing demand for affordable housingacross the nation, and the deterioratinghousing market and widespread insta-bility in credit markets, governmentalagencies may look to non-residentialdevelopers as a funding source of futureaffordable housing. In such cases, non-residential developers are well-advisedto consult with experienced counsel onstrategic ways to participate activelyand effectively in the regulatory andlegislative process.

Please note: The city ordinancesdiscussed herein were in varying stagesof the legislative or regulatory processwhen this article was submitted. Pleasecontact counsel for possible updates .•

TRAcy A. SIEBOLD is an Associate inBallard Spahr's Real Estate department inVoorhees, NJ, and a member of the firm'sHousing, Real Estate Development andZoning and Land Use Groups. Herprimary focus is on land use and MountLaurel doctrine compliance and litigation.Her clients include major commercial andresidential developers, trade organizationsand landowners throughout New Jersey inconnection with real estate litigation,zoning and land use litigation, and afford-able housing compliance and litigation.

for long periods of time, under theassumption that the longer such visi-tors remain captive audiences, themore likely they will spend their moneythere. On the other hand, mall ownersare wary of groups or gangs using theirfacilities as a hangout, with little or nochance of remuneration, especially ifthey believe that these groups will scareoff paying customers.

Such rules are further complicatedwith the advent of the lifestyle center,as developers create open streetscapesand park-like environments within theircenters. These green spaces entice

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Continued From Poge 7Creative Solutions

groups to congregate at what wouldotherwise appear to be a public park orarea. Further, in some suburban com-munities, these are the closest thing toa public park available when, in fact,they are privately owned and main-tained by the developer.

Confusion and potential problemsmay arise when this seemingly publicspace is regulated under private restric-tions. Without the confinement of thetypical regional enclosed mall, custo-mers do not realize when or if they areactually on private property and thepublidprivate distinction becomesblurred. Courts in most states have tra-ditionally upheld the rights of privateproperty owners to prevent interferencewith business. The u.s. Supreme Courthas ruled that a shopping center doesnot become a public space solely be-cause it is open to the public. However,as fewer and fewer public spaces exist,and as the line between public andprivate spaces becomes more blurred,there is a chance that opinions may shift.Most of the court cases on the issue ofshopping centers as private or publicproperty have centered on petitioners orprotestors, and it should be noted thatsome states do not grant as broad rightsto private property owners. Californiaand New Jersey have allowed freedomof speech issues to rise above those ofproperty rights of the mall owners. Forexample, in December 2007, theCalifornia State Supreme Court ruledthat individuals are allowed to demon-strate on mall property to call for aboycott of a tenant. Fashion Valley Mall,LLC v. N.L.R.B., 42 Cal. 4th 850 (2007).

Property owners may enforce "time,place and manner" restrictions, butmay not completely prohibit politicalspeech, even when it disrupts business.Therefore, in light of the fact that somecourts are allowing for the greater pro-tection of individual free speech rights,it is important for shopping center

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owners to implement only those prohi-bitions and bans that are reasonableand necessary so that they do not riskalienating consumers or having theirrules struck down.

Compliance With "1be Code"Even with the best implementation,there will be those opposed to the bans;however, some malls are taking moreproactive inclusive approaches. OneNorth Carolina mall did not want toimplement a parental escort policy

An alternative toimplementing and

enforcing a mall-basedpolicy is to work withlocal governments to

create and help enforcepolicies that lend

themselves toimplementation on a

citywide basis, such assmoking bans or general

curfews for minors.

because the mall owner thought that itwould hurt store sales. However, theowner wanted to reduce the crime thatwas occurring at the mall. The ownertook a very creative approach to detercrime, mostly attributable to teenagevisitors, by implementing a newstrategy that was centered on a musicCD, which included a rock song show-casing the mall's code of conduct ('TheCode"). The CD was distributed to theschool district's middle and high schoolstudents. The mall then invited the

8

students to compete in a live contest,performing the song at the mall. Thewinner of the best performance wasawarded a mall gift card worth $500.Thirty students performed 'The Code"in front of 300 shoppers. One studenteven penned his own song about themall and performed it for the audience.The mall owner considered the eventand the CD a success. Not only wasthere a reduction in the number offights and disturbances at the mall, butthe owner also reported an increase inthe amount of sales.

Final ThoughtsBefore implementing any sort of ban orprohibition, the shopping center ownershould fully discuss and analyze anypotential ban or new restriction, en-suring that whatever policy devised islegal and enforceable; workable from anoperational standpoint; implementedon a uniform, non-discriminatory basis;and clearly defined and explained to thepublic, personnel and tenants.

An alternative to implementing andenforcing a mall-based policy is to workwith local governments to create andhelp enforce policies that lend them-selves to implementation on a citywidebasis, such as smoking bans or generalcurfews for minors. Centers that havebeen most successful in their bans andprohibition policies have undertakenthis approach

Finally, implementation also requiresadequate training and monitoring ofenforcement to ensure that the owner isobtaining' the desired result and notcreating unintended consequences orliability. Such training should includeemphasis on how the policies should beenforced uniformly, in a non-harassingmanner, and not just toward those ofcertain ethnic or social backgrounds orin certain types of dress. The windowshoppers or loiterers of today canbecome the customers of tomorrow .•

AMANDA DILLARD is an Associate inthe Real Estate practice group in theDallas office ofK&L Gates.

THE PROBLEM-SOLVING TOOL FOR RETAIL LAW

Continued From Page 3Lease Extensions

the original lease fulfilled the require-ments of the statute of frauds). Arenewal, on the other hand, is a new leasefor a new term; and, because it is a newlease, it must be in writing unless thelease expressly provides otherwise.Khourie Bros. v. Jonakin, 222 Ky. 277(1927) The parties should, therefore,carefully consider what will be requiredof the landlord and the tenant, and drafta renewal provision accordingly.

MiscellaneousThe parties' failure to address extensionand renewal concepts adequately canhave other unintended consequences.For example, as discussed above, issuesof a landlord's waiver of rights underthe lease may turn on whether thetenant's right is one to extend or renew.Or, for example, if a tenant having aright to renew but failing to exercisesuch right becomes a holdover tenant,improvements made to the demisedpremises during the holdover tenancymay be the landlord's property becausethey were made other than pursuant toa right granted under a lease.

Best PracticesParties who merely skim a lease ex-tension or renewal provision to checkfor the correct number of extension!renewal periods and lengths thereofmay encounter difficulty at renewaltime. Whether a lease provision grantsa right to extend or renew the lease isdetermined by the parties' expressintent (not the use of a particularword), and the parties must, therefore,carefully consider the rights and obliga-tions of each party with respect toextension and renewal rights.

The following tips may be helpful(and form language follows):

• Expressly provide that the renewalterm will be on all of the terms andconditions of the lease, except those

terms and conditions that apply onlyduring the initial term. For example,rent will probably increase, and theparties may want to limit the applica-tion of certain rights to a specific timeperiod (such as use exclusives, rightsof first refusal and termination rights).

• Specify the means of notice and thedate by which such notice must begrven.

• Consider whether the landlordmust provide a reminder notice tothe tenant in the event that the

While some jurisdictionsmake a distinction

between an extensionand a renewal, thedistinction is often

technical and, therefore,is frequently not at theforefront of the parties'

list of issues.

tenant does not exercise its renewal.(This will be a function of bargain-ing strength.)

• If rent for the renewal period is notfixed, carefully set forth how andwhen the same will be calculatedand the consequences for failing toreach agreement. In one case, atenant gave notice of its election torenew, but the parties did not followthe lease provision regarding howthe rent would be calculated. Thecourt, contrary to the landlord'scontention, therefore, held that thelease was not renewed and thelandlord was not due rent beyondthe original term. HLM Realty Corp.

9

v. MOTTeale,394 Mass. 714 (1985)• Include a "time is of the essence"

provlSlon.

ConclusionWhile some jurisdictions make a dis-tinction between an extension and arenewal, the distinction is often tech-nical and, therefore, is frequently not atthe forefront of the parties' list ofissues. For all practical purposes, and tothe mind ofthe lay person (and prob-ably to most members of the bar), thedistinction between an extension and arenewal is largely academic; and, athorough lease clause can avoid therisks altogether. In exercising carefuldraftsmanship, the parties may avoidunnecessary risk and unintendedresults-in leases with brief extensionor renewal provisions, such provisionscan convey very different rights.

Sample LanguageProvided Tenant has fullycomplied withall of the terms, provisions, and condi-tions on its part to be performed underthis Lease and is not in default underthis Lease, Tenant may, by givingwritten notice to Landlord at least six(6) months on or before the expirationof the initial term of this Lease, extendsuch term for one ( 1) period of___ (__ )year(s) upon the samecovenants and agreements as are hereinset forth, except that the minimum rentduring such renewal term shall beincreased to _Dollars ($ ) per month. Tuneis of the essence with respect to Tenant'sexercise of the renewal right set forthherein .•

JACOB P. CROCKETI is an Associate inthe real estate practice group inSchottenstein, Zox & Dunn's Columbus,OH, office. His practice focuses primarilyon commercial development and leasing,including the representation of nationalretail tenants and developers of mixed-use properties. He can be contacted at(0) 614-462-1070; (F) 614.222.4724;jcrockett@szd.com; or www.szd.com

I,~Case Briefs;~~~, ~4Zi"'i",""h--------,~

Personal GuarantyWhen a party enters into a lease agree-ment, a separate guaranty agreement iscreated, where the "undersigned" givesa guaranty to pay rent and other costsassociated with a lease agreement.Westgate Village Shopping Center v,Parker, Court of Appeals No. L-08-1017, Court of Appeals of Ohio, SixthAppellate District, Lucas County, May30,2008.The landlord and tenant entered into aleaseagreement for space in a shoppingcenter. Thereafter, the tenant fellbehind in the rent and the landlord fileda complaint seeking to evict the tenantand for damages against the guarantor.The tenant fileda motion for summaryJudgment seeking a determination thatshe was not personally liable on thelease.The landlordopposed the motionand sought its own summary judgmentmotIon. Although the trial court heldthat the issue of damages was inappro-pnate for summary judgment, it heldthat the lease agreement disallowedliabilityfor a representative of either thelandlord or the tenant and concludedthat the tenant was not personallyliablefor any unpaid rent. The appellate courtreversed.It held that when parties enterinto a lease agreement, they create aseparate guaranty agreement, wherethe "undersigned" gives a guaranty topay rent and other costs associated witha lease agreement. It held that, in thiscase, because the tenant signed theguaranty with her personal name andwrote only "ExecutiveDirector" imme-diatelybeneath her signature, she couldnot avoid personal liability.Such a des-ignation is only descriptive of thecharacter or capacity of the person, anddoes not allowsuch individual to denythe guaranty.

RETAIL LAW STRATEGIST

Public Access~ sho?ping center is found not guiltyofVIolatingthe NLRA (National LaborRelations Act). Sal7lWtl Run ShoppingCenter llC v, National Labor RelationsBoard, 06-4961, 2nd Cir. July 182008. "A shopping mall operator refused topermit a local carpenter's union, whichwas having a dispute with a tenantusing non-union employees in remod-eling its space, from setting up a tableand distributing literature at the mall.Adopting an administrative lawjudge'sfindingthat the malloperator breachedNLRA § 8(a)(I), the NLRA ruled thatthe mall had engaged in an unfair laborpractice by excludingthe union from itsproperty because it was a labor organi-zation. The appeals court vacated theNLRB's (National Labor RelationsBoard) order and its petition for theorder's enforcement. Although rightsunder NLRA § 7 were implicated, thefacts did not show discriminationunder NLRB v.Babcock & Wilcox Co.There was no evidence that anyemployer was permitted to communi-cate to the general public, through theuse of mall facilities, its reasons for notpaying area standard wages to mem-bers of a unionized trade. Nor was anycompeting labor group permitted toengage in efforts to organize membersof its trade.

WaiverBy delaying its objection to a tenant'srelocationwithin a shopping center, thelandlord was deemed to have acqui-esced in the relocation and waived itsright to claim a breach of sublease anduse clauses under the lease with thetenant. Carr-Gottstein Foods, Co, andSafeway, Inc. v. Wasilla, llC d/b/aWasilla Shopping Center, LLC, S~premeCourt No. S-I2010, No. 6265, SupremeCourt ofAlaska,May 16,2008.CG Properties owned a shoppingcenter where CG Foods, a grocerystore, and Oaken Keg Spirit Shops(Oaken Keg), a liquor store, werelocated. Originally, Oaken Keg was

10

housed in a separate building from CGFoods, pursuant to Alaskan law. In1994,Alaskan lawwas modified,whichallowed liquor to be sold in grocerystores, pursuant to certain conditions.As a result, CG Foods carved out asection of the grocery store for OakenKeg,but constructed glasspartitions inorder to conform to Alaskan law.Thereafter, Safeway purchased CGFoods. A fewyears later,CG Propertiescommenced an action against Safeway,CG Foods and Oaken Keg SpiritShops, alleging that Oaken Keg's relo-catIon to the partitioned area waswithout the consent of CG Properties.CG Properties claimed that the reloca-tion violated the lease's use and sub-lease clauses. CG Properties soughtdeclaratory relief and a permanentinjunction preventing Safeway fromoperating an Oaken Kegliquor store onthe supermarket premises. The trialcourt granted CG Properties' motionfor summary judgment concerning thesubleaseclause,holdingthat CG Foodsbreached its duty to seek permissionbefore sub-leasing a portion of theleased premises. The Alaska SupremeCourt reversed. It held that by its delayIn obJecting,CG Properties had acqui-esced in the move of the liquor store. Itconsidered that CG Properties wascompletely aware of the relocation andfailed to protest in a timely fashion.Because the supreme court concludedthat CG Properties had waived its rightto claim that CG Foods breached thesublease or use clauses, it did notaddress the other issues raised by thepartIes.

THE PROBLEM-SOLVING TOOL FOR RETAIL LAW

! Legislative__ NewsAround the Nation ...

ENVIRONMENTNew JerseyOn Sept. 5, Gov. Jon Corzine (D) gavehis approval to the Highlands RegionalMaster Plan and issued ExecutiveOrder # 114 to strengthen its implemen-tation. The Highlands Regional MasterPlan is intended to protect environmen-tally sensitive areas and natural re-sources in the Highlands of NorthernNew Jersey, which provides a source ofdrinking water for more than 60% of thestate's residents. The executive orderprovides for (1) the reauthorization ofthe Garden State Preservation Trust toensure an ample supply of funds for pur-chasing open spaces; (2) the earmark-ing of $10 million to begin the processof purchasing development credits fromthose who want to remain on farmlandin the Highlands; (3) directing thestate's Department of EnvironmentalProtection to restrict permits for newdevelopment that drains water fromundeveloped regions in the HighlandsPlanning Area where water is deficient;(4) directing the Council on AffordableHousing to work with the HighlandsCouncil to ensure that nothing impedesthe protection of Highlands water; and(5) directing the Highlands Council toensure that all future planning decisionsbe done in an open and transparentmanner, and open to public comment.

New YorkThe New York Legislature passed S.B.8134, which creates a "green residentialbuilding" grant program to encourage theconstruction of new homes, and the reno-vation of existing homes, consistent withgreen residential building standards estab-lished by the state's Energy Research andDevelopment Authority. The billdevelopsgreen residential building standards andcriteria for the green residential building

program created pursuant to this section,and provides that, in establishing suchstandards and criteria, the authority mayconsult standards and criteria establishedby other organizations, including but notlimited to, the U. S. Green BuildingCouncil Leadership in Energy and Envi-ronmental Design (LEED) standards. Asof publication, the bill was awaitingapproval byCov. David Paterson (D).

INSURANCETexasThe damage caused by Hurricane lke isshaping up to be one of the mostexpensive natural disasters the insur-ance industry has ever faced. The fear isthat claims could reach over $25 billion,making Ike the second-most expensivehurricane in history, right behind Hurri-cane Katrina. Losses will more thanlikely exceed the $2.1 billion, which theTexasWmdstorm Insurance Association(1WIA) currently has on-hand to coverthe claims. 1WIA will be forced to levyassessments on insurance companies tomake up for the difference. Pressure isbuilding on the Governor and theLegislature to make this an emergencyissue when the state's Legislatureconvenes for the next legislative sessionin January 2009.

WORKFORCEColoradoWith just weeks left before Election Dayand with mail-in ballots hitting mailboxesin the firstweek of October, the Coloradoinitiative showdown is coming to a head.Currently, all four anti-business measures(53,55,56 and 57) remain on the ballot,as does Amendment #47: Right-to-Work and two other measures opposedby labor unions (49 and 54). GovernorBill Ritter (0), Denver Mayor JohnHickenlooper and members of thestate's business community have beenworking on a deal that could result inthe four labor-backed initiatives beingpulled from the ballot. The deal wouldrequire the business community to putmillions of dollars into defeating theRight-to-Work in exchange for removalof the anti-business initiatives.

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GROWfH MANAGEMENTMassachusettsGovernor Deval Patrick's (D) adminis-tration rolled out regulations on Sept.24 to pave the way for large-scale devel-opments funded by state borrowing andprivate investment. The administrationexpects the regulations to jump-startdevelopments under infrastructure in-vestment incentive legislation, "!-cubed,"passed last year to facilitate up to 25economic development projects usingup to $250 million in bonds. Under thelaw, the state would help finance thedevelopments along with private devel-opers as long as projected revenue fromthe project would help repay the state'sinvestment. Should the project fail tomeet revenue projections, the munici-pality hosting the project would have topay the difference.

New YorkThe state's Legislature has passed A.B.7335, which requires state agencies tofund infrastructure in a manner that isconsistent with smart growth principles.A.B. 7335 provides for the establishmentof a smart growth advisory committee. Asof publication, the bill was sent to Gov.David Paterson (D) for his approval.

TAXATIONNew YorkState Senate Majority Leader DeanSkelos (R) has unveiled an omnibus eco-nomic development plan that focuses onlowering the cost of doing business in thestate by eliminating taxes and creatingadditional tax credits for investments andjob creation. He contends that it wouldeventually replace the approximately$550 million a year Empire Zone eco-nomic incentive program, which is set toexpire in two years. The Senator's planincludes cutting taxes on small busi-nesses in half and eliminating businesstaxes for small manufacturers; creatingnew tax credits tied to job creation andjob training by manufacturers; and re-forming the Empire Zone program toincrease accountability to ensure thatcompanies receiving benefits are creat-ing high-paying jobs.

RETAIL Li\W STRATEGIST

In this issue

CREATIVE SOLUTIONS

LEASE EXTENSIONS AND RENEWALS:ONE AND THE SAME?

COMMERCIAL DEVELOPERS IN NEW JERSEY MUST HELP PAY FORAFFORDABLE HOUSING-WILL OTHERS FOLLOW?

THE CONTROVERSY OVER CONSEQUENTIAL DAMAGES-PART 2

CASE BRIEFS

LEGISLATIVE NEWS

International Council of Shopping Centers1221 Avenue of the AmericasNew York, NY 10020- 1099

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