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Are Prohibited Uses Prohibiting Opportunity?

Despite how it may sometimes seem when in the throes of negotiating a lease between a shopping center landlord and a retail tenant, the overarching goals of the two parties are aligned. Both parties want the tenant to be successful and want the landlord’s shopping center to be active and vibrant, filled with “hot” tenants and many shoppers. Landlords will sometimes agree – typically in connection with the lease to an anchor or box tenant – that certain uses shall be prohibited at the center, which “prohibited uses” will then restrict the use of space at the shopping center by other prospective tenants. The standard list of prohibited uses was solidified years ago and today remains more or less uniform. These prohibited uses generally fit into at least one of three categories: (1) uses that would pose a threat to the health and/or safety of shopping center occupants, (2) uses that are regarded as improper (e.g., the sale of pornography, tattoo parlors and so-called head shops), or (3) uses that monopolize parking spaces for use by consumers who are not (historically) there to shop (e.g., movie theaters, bowling alleys and health clubs, to name a few examples relevant to this post). While the basic list of prohibited uses that has been used for decades is still being used in anchor tenant leases today, one need only look around at the newest retail centers – whether a part of an urban mixed-use development or a suburban lifestyle center - to see that the list (in particular, the prohibited uses related to parking) no longer reflects the realities of today’s centers and therefore needs some updating.

At Boston Retail 2016 event last week, several movers and shakers in the Boston retail scene contemplated the latest trends in retail, including strategies for brick and mortar retailers to coexist and thrive in the omni-channel age. During that conversation, Deborah Byrnes, President of Retail Resource, Inc. keenly observed that “the Internet is isolating.” The antidote: create an experience for consumers to draw them out of their isolation and into society… and while they’re there taking in an experience, they’ll likely do a little shopping too. Take, for example, Boston’s new Seaport Square – an urban retail/office/residential development that is currently in the later stages of development. Seaport Square is being anchored by operators of three traditionally prohibited uses: Kings (a bowling alley), Equinox (a health club) and a 10-auditorium ShowPlace Icon Theatre. This development epitomizes the sea change in retail models, where experience providers are now viewed as important suppliers of consumers to a development’s retailers, as opposed to merely parking hogs.

In addition, medical uses have historically been viewed negatively by retailers. But it has become apparent that certain medical services, such as minute clinics, community health centers and providers of medical supplies to consumers, bring consumers to retail centers on a consistent basis all day long. “Medical retail” provides a steady supply of foot traffic to the surrounding retail and restaurant space, which only benefits a shopping center. Similarly, Pilates, yoga and spin studios, where members spend around an hour or so in a class, but which are “health clubs” and, thus, traditional prohibited uses, are becoming increasingly popular tenants as a result of their ability to bring consumers to, and symbiotic relationship with, retail. Who doesn’t want a reward – whether in the form of a smoothie from the anchor grocer or a new outfit, maybe even one size down as a result of hard work, from the anchor department store – after a good workout?

A critical review of the once tried and true prohibited uses list, in light of the evolution of retail centers, tends to suggest that certain historically prohibited uses should be rotated off the list to facilitate the shared goal of retailers and landlords that the centers in which they are operating remain fresh, lively and full of consumers involved in, and not isolated from, society.

Related topics: Landlords, Leasing, Retail, Tenant