Ensuring that lease restrictions don't encumber a commercial property's future
I was disturbed yesterday, when talking with someone about Walmart's foray into DC, to realize that I completely forgot to raise an important issue about how chain retailers put provisions in leases that put restrictions on what kind of tenants can lease the property if and when the chain store closes or moves to another location.
It's not discussed in this report, ANC4B Large Tract Review Report on Walmart, 5/2011, for which I was the chief author.
Note that this practice is typical in shopping centers under single ownership (see the ABA Lawyer article "Restrictive Covenants - the Life Cycle of a Shopping Center") but become much more complicated when applied to traditional commercial districts with properties owned by a myriad of operators. Also see "Small stores face uphill battle getting into malls" from the Toronto Globe & Mail.
In DC proper I can think of two examples of what are called retail restrictive covenants and how they can make it very difficult to re-lease vacant commercial retail spaces.
Safeway, when they closed neighborhood-located stores (such as on 12th Street NE in Brookland or on H Street NE) in favor of opening "regionally-serving" and much bigger supermarkets at locations such as Hechinger Mall or Rhode Island Avenue (that store has since closed) had a provision that the space couldn't be re-leased to another supermarket. Many of these spaces stayed empty or were converted to nonretail uses like adult daycare or medical offices.
(I think CVS probably did this too, but I don't have any first hand knowledge of it.)
And when a movie theater chain closed its older theaters on Thomas Jefferson Street NW in Georgetown (called the Foundary Theaters) in favor of a different location, they had a restrictive covenant in the lease to prevent the space from being re-leased to another cinema company.
In Chicago, a few years ago the City Council passed legislation making such lease terms illegal. See the 2005 blog entry "Chicago City Council proposes law making retail restrictive covenants illegal." And according to "On the Path of Lease Resistance" from the New York Law Journal, state law in New York State generally doesn't support retail restrictive covenants either.
With regard to Walmart in DC, I don't really care if they come in--I can choose to not shop there and don't feel I have to impose my choices on others, at least this particular choice--as long as the urban form of the sites is right, because if and when their stores are replaced, we have the right urban form. That's why I am so worked up over the fact that most of their stores aren't really urban, even if they aren't parking fronted like their suburban stores.
But if Walmart puts significant lease restrictions in their deals with local property owners, the ability of those sites to be reshaped and released in positive ways is seriously encumbered in ways that don't promote urban design and revitalization at all.
Note that I agree with the Post that DC Council's imminent passage of wage requirements on big boxes is misdirected. Instead, a big box ordinance addressing a variety of issues, including retail restrictive covenants, and mitigating potentially negative effects on small retailers is something that should be taken up. See the Post editorial, "Is the DC Council trying to scare off retailers?"