Struggling Anchor Tenants Still Embracing Dated Covenants To Fight Mall Redevelopments

A handful of department stores across the country are exacerbating mall owners woes during this time of change in the retail industry. 

Landlords struggling to attract shoppers to their properties are looking to facelifts and more experiential tenants to boost traffic, but department stores clinging to what is known as reciprocal easement agreements are making this difficult, Bloomberg reports. 

REAs are contractual agreements typically entered into when a landlord and one or more major retailers (typically the anchors) share ownership of all, or sections, of a shopping center. The agreement is meant to protect the rights and obligations of the owners and those tenants that are contractually bound.

In order to stay afloat amid the rise of e-commerce, many mall landlords have sought to redevelop properties with amenities such as gyms, bowling alleys and medical service tenants in order to enhance the shopper experience and offer them what e-commerce cannot.

But REAs are putting a wrench in those plans. Having been established decades ago when department stores were the main customer draw, the contracts still give anchor stores the final say over how a property can be used despite the market shift.

In the case of Sunrise Mall in Northern California, this has led to the property being left in limbo. Owners of the mall have slowed their push to improve the property because of REAs that have given the power to its department stores, which include Macy’s, JCPenney and Sears. According to Bloomberg, Macy’s is seeking several million dollars from the landlords in order to allow them to move forward with the upgrades.

As it waits for necessary upgrades, the mall is consistently losing business to more modern shopping centers in the local vicinity.