Lease Implications of Curbside Pickup
As the COVID-19 pandemic continues to take its toll on retail businesses throughout the country, the phenomenon of curbside pickup has spread from coast to coast. With some evidence suggesting that retail customers may continue to prefer curbside pickup over traditional in-store pickup for the foreseeable future, retail businesses and their landlords should consider the potential lease implications of initiating or expanding curbside pickup programs. These may include dedicated parking allotments, use and maintenance of common areas, new signage, modifications to site plans, insurance requirements, and compliance with title, zoning, and land use restrictions, among others.
The first and most obvious lease implication of curbside pickup concerns the use of parking lots and common areas. For example, while a curbside pickup program may necessitate dedicated parking spaces, a retail business may or may not have negotiated for exclusive parking rights under its lease (or may not have negotiated for a sufficient amount). In addition, the right to use common areas in a retail project is generally non-exclusive, so the tenant may not have the right to use its desired sidewalk areas on an exclusive basis. Accordingly, the tenant (depending on its needs) may be forced into a new negotiation with its landlord for additional rights under its lease.
Related to this first issue is the issue of signage: one would expect a successful curbside pickup program to include highly visible signage denoting the area for curbside pickup. Unfortunately, a tenant’s signage rights are typically heavily restricted in retail leases, and posting new signage at the curb is likely to require the landlord’s consent. More sophisticated landlords may also have an existing signage program in place, which the tenant’s new signage may be required to comply with.
In addition, negotiating for new rights (or other approvals) from the landlord may not be the end of the road for the tenant. In the event that the retail project includes multiple parcels owned by different owners, the parties are likely to have in place a reciprocal easement agreement (REA) or other similar recorded document that outlines the various obligations of the parties (such as with respect to parking and common areas). In such a case, the REA will act as an overlapping layer of requirements and restrictions on top of the lease, both of which the tenant will need to navigate.
There are also second-order issues to consider. A curbside pickup program may result in an increase in common area maintenance or management costs (such as costs for additional traffic flow and parking management). Other tenants (without curbside pickup programs) may not appreciate having to help shoulder these additional common area expenses. Increased traffic flow may also increase the overall risk of traffic collisions or other accidents at the retail project—which may in turn allow the landlord to require the tenant to carry additional insurance coverage (depending on the terms negotiated in the lease). In any event, the tenant may want to carry additional insurance coverage for its own reasons, given the increased risks that may be involved. Finally, a tenant should confirm whether its planned curbside pickup program is in compliance with the applicable zoning and land use restrictions (and whether a variance may be required).
As this brief summary demonstrates, there are a plethora of lurking lease issues implicated by curbside pickup programs at retail projects. Prudent tenants (and landlords) would do well to remember the importance of negotiating their leases, and building and strong and productive relationships with their counterparts.