ATLANTA—Most outlet mall leases has some provision regarding co-tenancy—and that's just the beginning of the legal issues landlords need to consider. GlobeSt.com caught up with Lori Kilberg and Benno Rothschild, partners with Hartmon Simons, an Atlanta-based commercial real estate firm, to get their take on legal issues and challenges surrounding outlet mall developments in part two of this exclusive interview. You can still read part one: Inside the Outlet Mall Boom.

Globest.com: Is there a certain kind of retailer that is most likely to want to rent space at an outlet center?

Rothschild: The most important tenants for outlets are going to be fashion retailers for the most part, though houseware retailers such as Le Creuset, Williams Sonoma and Pottery Barn are rapidly becoming more prevalent as well. One of the reasons retailers find outlet sites so appealing is that, in general, they have a less expensive rent structure and reduced operating costs, making them more profitable than full-priced stores.

GlobeSt.com: What are some of the common legal issues/challenges surrounding these developments?

Kilberg: Almost every outlet center lease has some provision regarding co-tenancy, whether it revolves around total shopping center occupancy or specifies “key tenants” that must be open and operating. Retailers understand that a successful outlet shopping center is built on synergy, which often requires a mix of both high-profile fashion anchors and smaller specialty stores with a board variety of merchandise to entice shoppers.

These provisions can be very complex, and clarity in drafting is critical. A related issue is early termination through a “sales kick out,” which permits a tenant (and sometimes its landlord) to terminate a lease if the tenant's annual gross sales do not meet a specified threshold amount.

Radius restrictions are another key negotiating point. Landlords seek to prevent cannibalism when other developments are close by and sap sales, while tenants desire flexibility to operate stores where they see growth opportunities. The larger trade areas served by outlet developments exacerbate an already tricky issue.

Finally, for outlet landlords, it's important to create periodic events to market and bring in consumers, so reservation of use of the common areas is important to include in the legal documentation to support a comprehensive marketing/advertising strategy. Careful drafting of these provisions is crucial to the long-term success of these projects.