ATLANTA—Most outlet mall leases has some provision regardingco-tenancy—and that's just the beginning of the legal issueslandlords need to consider. GlobeSt.com caught up with LoriKilberg and Benno Rothschild, partnerswith Hartmon Simons, an Atlanta-based commercialreal estate firm, to get their take on legal issues and challengessurrounding outlet mall developments in part two of this exclusiveinterview. You can still read part one: Inside the Outlet MallBoom.

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

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Rothschild: The most important tenants foroutlets are going to be fashion retailers for the most part, thoughhouseware retailers such as Le Creuset, Williams Sonoma and PotteryBarn are rapidly becoming more prevalent as well. One of thereasons retailers find outlet sites so appealing is that, ingeneral, they have a less expensive rent structure and reducedoperating costs, making them more profitable than full-pricedstores.

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

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Kilberg: Almost every outlet center lease hassome provision regarding co-tenancy, whether it revolves aroundtotal shopping center occupancy or specifies “key tenants” thatmust be open and operating. Retailers understand that a successfuloutlet shopping center is built on synergy, which often requires amix of both high-profile fashion anchors and smaller specialtystores with a board variety of merchandise to entice shoppers.

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

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Radius restrictions are another key negotiating point. Landlordsseek to prevent cannibalism when other developments are close byand sap sales, while tenants desire flexibility to operate storeswhere they see growth opportunities. The larger trade areas servedby outlet developments exacerbate an already tricky issue.

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

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