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Retail Law Advisor

Bringing Residential Uses to Existing Shopping Centers- A Win Win

Posted in Multifamily, Real Estate, Retail

Tenant curation, experiential retail, and social media-based marketing are thriving trends in today’s brick-and-mortar shopping center industry. Retail is not the only real estate asset class susceptible to trends, and a recent dominant trend in the multifamily residential sector may offer valuable opportunities for shopping center owners.

For those in the multifamily residential real estate sector, resident “amenities” is the buzzword for attracting and retaining tenants. Almost invariably, descriptions of the amenities trend describe it as an “arms race” as multifamily residential owners seek to offer newer, hipper, and better services and features to their tenants. For instance, rooftop pool lounges, dog parks, spas, business centers, community kitchens, bike centers, and technology are among the many, many varieties of amenities that landlords are offering their residential tenants. Increasingly, an amenity coveted by residents is proximity to retail choices. Therein lies the opportunity for shopping center owners.

With retail and dining options being viewed as residential amenities for multifamily developers and owners, some shopping center owners might find an opportunity by bringing multifamily uses to the shopping center. The pitch from shopping center owners to their multifamily counterparts is surprisingly simple: we have what your residents want. Residents increasingly want walkable access to restaurants, coffee shops, yoga studios, grocery stores, and the other shopping, dining, and entertainment experiences offered by retail uses. The benefit of this arrangement to shopping center owners is readily apparent. For retailers, residents living in close proximity to their shopping center translate to shoppers and patrons who can visit the shopping center multiple times per week. “Retail follows rooftops” is transforming to “rooftops within retail.”

Plenty of examples of the mixed-use retail and multifamily model exist. Assembly Row in Somerville, Massachusetts features residential units integrated into the upper stories of an open-air outlet center. Ballston Quarter in Arlington, Virginia does the same. Both mixed-use projects were constructed over or adjacent to more traditional single-use shopping centers. Similar concepts are in progress elsewhere, and the trend is even more prevalent in larger cities. However, there are still plenty of shopping centers that would, and still can, benefit by adding multifamily to the mix, potentially by repurposing or infilling excess parking lots.

Adding multifamily residential uses to an existing shopping center presents unique legal challenges. A multifamily residential use in a shopping center has different demands and imposes different limitations than retail tenants. For instance, issues that may arise include:

  • Prohibited use provisions – some retail tenants may have leases or, in the case of either anchor department stores or big boxes, recorded agreements that expressly prohibit multifamily uses. For decades, retailers had a strong belief that non-retail uses should not be allowed in shopping centers and demanded leases or other agreements memorialize such restrictions on landlords. These agreements would need to be carefully studied and potentially modified.
  • Entitlements – zoning or other land use restrictions may prohibit multifamily uses in shopping center areas or may impose other restrictions, such as prohibiting any reduction in parking or a change in configuration of the overall site plan for the shopping center.
  • Common Area Charges and Maintenance Obligations – the shopping center owner and multifamily residential manager will have to reach an agreement on the responsibility and allocation of costs for maintaining common areas, such as access ways, parking, signage, and amenity areas. These agreements will likely require a recordable reciprocal easement agreement or covenants, conditions, and restrictions agreement to reflect all of the operational agreements among the parties, and may require tenant buy-in.
  • Construction period obligations – a shopping center owner may want to protect its property and its retailers during any build-out of a new multifamily use in the form of a temporary agreement that exists during the construction period. The shopping center owner may want to insist upon insurance and indemnity protections as well as other conditions unique to the proposed new construction, such as use of roadways by construction vehicles.

As shopping center owners look for opportunities to take advantage of trends in the multifamily residential sector to add value to their properties, each of these issues, and many others, will need to be addressed on a case-by-case basis for each shopping center.

Sustainability in the Fashion Industry: Kering Group’s Innovative Approach in the Luxury Sphere

Posted in Retail, Retail Sales

Retailers are facing an increasing population of ethically minded consumers. A Nielsen 2015 global survey found that 66% of respondents were “willing to pay more for products and services that come from companies that are committed to positive social and environmental impact,” up from 55% in 2014. The report also found that 73% of global millennials are willing to pay extra for sustainable products, an increase from 50% in 2014. Another 2014 study found that 81 percent of millennials expect companies to commit publicly to good corporate citizenship. Generation Z—the generation born between the mid-1990s and early 2000s—are even more environmentally and socially aware than millennials, and we have witnessed the strength of their convictions over the past two weeks.

The retail manufacturing industry, the second most polluting industry behind the oil industry, will be expected to meet the preferences of these consumers by developing long-term, industry-wide sustainable and ethical practices. This growing young generation of consumers will call out companies on social media that are not fully transparent or “merely pay lip service” to corporate social responsibility.

Some luxury brands have resisted this call for transparency. As the fashion industry has faced increasing scrutiny over its social and environment impact, these brands have hidden “behind sepia-tinted marketing images of craftsmanship,” suggesting they do not contribute to the pollution associated with mass production. Luxury brands also play up the “the necessity of confidentiality—for example, many won’t reveal the exact location of their factories.” Luxury brands typically do not collaborate to develop sustainable materials; “for Haute couturiers, the exclusivity of the materials is as crucial as the exclusivity of the designs.” Some fashion houses will “go as far as acquiring heritage ateliers and fabric mills to ensure the uniqueness of their creations.”

One exception is Kering, a global luxury group composed of luxury fashion houses including Gucci, Balenciaga, Alexander McQueen, and Stella McCartney. Kering is committed to bringing transparency and collaboration to the luxury sphere. Marie Claire Deveu, Kering’s chief sustainability officer, highlights that Kering has taken on the “responsibility not only to educate its own designers but also to let its competitors benefit from that research too, in the hope that peer pressure will force change.”

Kering’s commitment to transparency will benefit its competitors as well as non-luxury brands. For example, Kering developed a new approach to producing leather—which traditionally causes horrific damage to the environment and nearby communities—and shared each step of this approach, “herd to handbag,” with its rivals. Additionally, Kering created and made available to the public an app for designers called “My EP&L.” My EP&L calculates the environmental cost of a design—comparing carbon emissions, pollution, and waste—depending on the raw materials and manufacturing locations proposed for each design.

While its approach may be less competitive than its peers, Kering hopes to profit from its transparency with its investors. Kering makes all of its sustainable targets public in detailed reports alongside it financial results. Investment analysts and shareholders are taking notice of the fact that ethical considerations are part of a brands profitability, and “are taking a closer interest in, say, how ethically sound a luxury brand’s snake farm or cotton field is.”

Settlement Opens Door For Outer Borough Outlet Centers

Posted in Landlords, Leasing, Real Estate, Restaurants, Retail, Tenant

In August 2017, Simon Property Group (“SPG”) and the Office of the Attorney General of the State of New York (“NYAG”) entered into an Assurance of Discontinuance (the “Settlement”) regarding alleged anti-competitive effects of radius restrictions used by SPG in leases at the Woodbury Common Premium Outlets (“Woodbury Commons”) and The Mills at Jersey Gardens (“Jersey Gardens”).

Radius restrictions are very common provisions in retail leases. They protect a landlord’s investment in its property and in a particular lease by preventing tenants from operating additional stores within a set area, frequently expressed as a distance from a particular shopping center. When narrowly drawn, radius restrictions may benefit tenants as well as landlords by fostering a desirable mix of tenants and drawing retail traffic.

Nevertheless, because radius restrictions do limit a tenant’s ability to conduct its business, unreasonable radius restrictions may violate state and federal antitrust law. Whether a radius restriction is reasonable is generally a unique and highly fact specific inquiry that depends heavily on the relevant geographic area and the type of business involved.

Woodbury Commons is a large outlet center with over 200 retailers, located approximately 40 miles northwest of New York City. Woodbury Commons is one of the highest grossing shopping centers in the country and it draws customers from throughout the New York metropolitan area as well as a large number of international tourists.

NYAG noted that retail leases at Woodbury Commons are typically for 10 years and the majority of leases include a radius restriction of 60 miles around Woodbury Commons. The 60 mile radius includes the area between Woodbury and Manhattan, and extends to the Bronx, Queens, Brooklyn and Staten Island, as well as parts of Suffolk and Nassau counties. NYAG concluded that this 60 miles radius restriction may have prevented outlet retailers at Woodbury Commons from opening additional outlet stores in the New York City area and may have prevented other outlet developers from opening competing outlet centers in the New York City area.  Finally, the NYAG found that, under current market conditions, the 60 mile radius “is likely broader than necessary to achieve any legitimate procompetitive benefits.”

Jersey Gardens is a shopping center in Elizabeth, New Jersey, which SPG acquired in 2015, and which also contains outlet stores that draw consumers from the New York City area. NYAG concluded that the radius restrictions in leases at Jersey Gardens also have the potential limit retailers’ ability to open additional outlet stores in the New York City area.

SPG neither admitted nor denied the NYAG findings and conclusions in entering the Settlement.

Under the terms of the Settlement, SPG is required, in part, to waive and ultimately amend the 60 mile restriction in its leases at Woodbury Commons and Jersey Gardens to exclude the Relevant Area. The Relevant Area is defined in the Settlement as (1) more than 39 miles from Woodbury within the State of New York, and (2) Bronx County, with the following exceptions which are areas that may be included in the radius restriction: Community Districts 8 and 12 in the Bronx and all of Manhattan. By excluding the Relevant Area from the radius restriction, retailers would be permitted to open additional outlet stores in most of the Bronx, all of Brooklyn, Queens, and Staten Island, and all of Long Island.

The Settlement highlights the highly fact specific nature of antitrust review. While freeing the Relevant Area from the Woodbury Commons and Jersey Gardens radius restriction was likely an important goal of the Settlement, it should not be overlooked that NYAG permitted Simon to retain a substantial radius restriction covering a large geographic area, including all of Manhattan, Orange, Rockland, and Westchester counties, with more than 3 million residents.

While this Settlement is limited to radius restrictions affecting parts of New York (i.e., the Relevant Area), it would be prudent for landlords everywhere to be able to justify a legitimate business purpose in crafting any radius restriction contained in its leases.

A Grocery Attack on Multiple Fronts

Posted in Retail, Retail Sales, Technology

Amazon has entered the grocery store space with a bang. From the recent opening of its AmazonGo store, to its acquisition of Whole Foods last August, Amazon has threatened to disrupt the grocery store industry and has jolted the stock price of many of its competitors. But will these new developments have a material impact on food shopping habits and the grocery store shopping experience generally?

Amazon’s new store, which debuted late last month in Seattle, bypasses one staple of the retail experience: the checkout process. In order to enter the AmazonGo store, the customer must scan the AmazonGo application from his or her smartphone. From there, cameras track the customer’s movement around the store using facial recognition. The shelves are weighted and can determine when someone has taken a product off of that shelf. As the customer leaves the store, everything in his or her cart is tallied, and the customer’s Amazon account is charged for the purchases (although there are processes to resolve disputed charges). The customer never has to stop to unload a cart, scan any items, or pay a cashier. It is a novel approach to the traditional retail system, one that Amazon is hoping to implement in more stores across the country.

However, this technology is not without its flaws. Some of these setbacks have included the cameras misidentifying customers who looked similar. Children, when allowed into the stores, disrupted the weight sensors by moving items between shelves or replacing them in the incorrect place. But, despite these initial hiccups and concerns about the loss of cashier jobs, the AmazonGo store has been generally well-received.

Amazon’s acquisition of Whole Foods also has the potential of reshaping the grocery shopping experience. Less than six months after completing the acquisition, Amazon announced that it would deliver groceries from Whole Foods to a customer in just two hours as part of its Amazon Prime Now service. Amazon has spent the last few months integrating Whole Food’s products into the Amazon family. In fact, Whole Foods products were featured on the shelves of the AmazonGo store. Many items from the Whole Foods line were immediately available through Amazon’s original grocery delivery service (Amazon Fresh) and, shortly after the acquisition, Alexa devices were being sold on the shelves of Whole Foods.

Why would Amazon roll out both the AmazonGo and Whole Foods acquisition initiatives in such a short span? The AmazonGo store certainly generated a lot of buzz in the retail industry, so why not focus on one new feature at a time? While we can only speculate as to the rationale behind these decisions, Amazon’s interest in the grocery sector has been clear for a while, beginning with its testing of “drive-through” grocery stores in 2015. Now, Amazon appears to be pushing ahead full-steam in its efforts to dominate the grocery market, as it has many others. Although stocks for other grocery stores fell after the acquisition of Whole Foods, it remains to be seen whether this merger will spell the end of other grocery providers. What is evident, however, is Amazon’s willingness to go boldly into a new sector and its efforts to reshape an industry through technology and the breadth of its company’s reach.

Facial Recognition in Retail: “Attention all Shoppers: We Already Know Everything about You”

Posted in Privacy, Retail, Security, Technology

Are you worried that “Alexa” is listening to your conversations? Do you cover your laptop camera with tape and refuse to store your passwords on your devices? Well, it looks like even stepping into the mall may require full-body armor if you wish to keep your basic data truly private. Retailers are increasingly utilizing advanced technologies such as facial recognition, biometric sensors, and smart-phone tracking in an attempt to compete with online retailers and beat the slouching trends of declining brick and mortar stores. Though these technologies have been around for years, their growing presence in the retail environment, and their increasing sophistication, has triggered a debate between those who value a tailored, efficient, and sometimes discounted shopping experience, and those who think their physical attributes and shopping habits are just that: theirs. And while struggling retailers may be tempted to utilize any technology that helps increase the bottom line, they should be mindful of not only privacy and data protection concerns, but a distaste from shoppers for what is sometimes perceived as an intrusion.

Retail stores are increasingly using these technologies to aggregate data related not only to your basic demographic information, such as age, gender, and race, but also whether your facial expressions indicate a particular mood, in which sections of the store you spend your time, or how long it takes you to decide between those two types of shampoo (and of course, which you choose). Undeniably, there are the more mild and agreeable uses of this technology, such as retailers using facial recognition to prevent theft by alerting staff to known repeat offenders on site. However, much of this technology is being developed and deployed for aid in optimizing the shopping experience for the user, and in turn, increasing retail sales. For instance, some retail stores scan patrons’ faces upon entering the store and matches them within a database of valued customers and celebrities to identify their individual profile: their purchase history, clothing size, or favorite items, and sends an alert to store staff with the relevant information. Are you a tired, 30-something at the grocery store on a Saturday? Your checkout register may just suggest a new coffee brand or some luxurious bubble bath to go with all of those groceries. These advances, convenient to some, creepy to others, beget the eternal question of privacy within this technology saturated-era: where do we draw the line?

While online retailers have the advantage of tracking cookies and piecing the “crumbs” together to deliver targeted, omni-channel marketing with almost unsettling accuracy, traditional brick and mortar stores argue the use of these technological innovations are no different. As a result, retailers are investing significant amounts of capital to ensure data security and prevent hacks of information they collect. Though the Freedom of Information Act is in place to prevent government overreach, no such structure currently exists to ensure private data and technology companies are kept in line. And while last month millions of Americans downloaded Google’s popular app “Arts & Culture”  to see whether they looked more like da Vinci’s Mona Lisa or Picasso’s Self-Portrait, users in Texas and Illinois were left stumped and unable to download the selfie-tool. That is because Texas and Illinois are currently the only states to ban the collection of biometric data, including a record of “face geometry” without a user’s consent, with other states like Washington and New York following in their efforts.

The takeaway for retailers? With so many advances in facial recognition technology, simultaneous to increasing state movement for protection of their citizens’ privacy, retailers should use great caution in investing heavily in any such technology. Moreover, retailers should already know their customers: potentially offending them with what they may consider invasive technology may just scare away customers and actually hurt their bottom line.

Foreign Retailers Entering New Markets: Finding A Home Of One’s Own

Posted in Real Estate, Retail, Retail Sales

The first task facing a retailer entering a new market? To find its customer. This chore takes on more significance for foreign retailers venturing into a complex, expansive and heterogeneous market such as the United States. Depending upon the soundness of the choice, the proverbial pot at the end of the rainbow could be filled with gold or acid rain. Even if your merchandise “travels well” and is suited for the US consumer, a poor choice of location can undermine an otherwise sound retail strategy.

Wise merchants utilize several techniques to increase their chances of success. Some deploy experienced retail consultants to develop a business plan for the prospective venture. Others utilize their online presence to serve as an advanced scouting party to determine where their customers are located. Surprises abound. A cruise-wear retailer will not necessarily find greater profits in warmer climes. Who would have thought that the frequently overcast UK leads the pack in sunglasses per capita (as we have heard anecdotally)?

It makes sense to draw parallels between customers in the home market and those in the US. If you’re a luxury brand with customers huddled in upscale, urban high rise condominiums, it would make sense to open in New York City, Chicago and Los Angeles, or a prestigious regional mall. Alternatively, take the example of one comfortable and casual life-style UK retailer with more than 200 stores in the UK and Ireland. For the most part, you won’t find this retailer on the high streets or in the upscale malls of the UK. But, take a look at the smaller towns and cities where this retailer examined the demographics to find locations with much more favorable economics and less downside risk. So where has their US strategy taken them? Try Portland, Maine, Chatham, Lenox and Edgartown, Massachusetts and Burlington, Vermont. Footfall in these locations is obviously not like major urban centers, but neither are the rents and labor costs.

A well thought-out strategy for site selection is clearly not enough to guarantee success for any retailer entering the US market. Goods must translate well and offer something unique or special. For apparel retailers, be cognizant of differing tastes in style and color. Size your clothing to accommodate varying physical shapes and sizes. But even if you do all of that, your venture will not succeed unless you choose your store locations to accommodate both the budget and your likely customers.

What Does Tax Reform Mean for Retail?

Posted in Retail, Tax

We all know now that the federal corporate tax rate for many retailers is dropping this year from an industry effective average rate of 32.9% to 21%, as a result of changes implemented by the so-called “Tax Cuts and Jobs Act” which was signed into law on December 22, 2017. Retailers with cash overseas will benefit from the move to a “territorial system” of international taxation. Under a territorial system no United States federal income tax is imposed on the operations of foreign corporate subsidiaries, even when profits are repatriated back into the United States. What will retailers do with their tax savings? Will repatriated funds be re-invested?

The National Retail Federation, which campaigned for the reform, sees the act as a victory for retailers, who pay some of the highest effective tax rates of any industry.

Following a year when thousands of stores closed and retailers struggled to find ways to keep brick and mortar relevant, we are following what different retailers are doing. Some retailers are paying employee bonuses. Others are paying dividends to shareholders, reducing debt, or building reserves. Others are investing in new technologies. Another way retailers are speculated to use tax savings to be more competitive is to make “price investments” – dropping prices throughout their stores.

Here is some of what we are seeing:

Apple and Walmart have announced they will pay special bonuses to their employees. Walmart plans to give $1,000 bonuses to workers, depending on their length of service. It is estimated that these bonuses will cost approximately $400 million. Apple has announced that it is paying employees below the senior level title of director bonuses worth $2,500 in the form of restricted stock units. Prior to the tax reform, Target committed to increasing its minimum wages to $15 per hour by 2020.  When news of tax reform hit, Walmart announced a minimum wage boost to $11.00 per hour.

Footwear and apparel retailers who hold billions of cash overseas will be incentivized to bring cash back to the United States. Abercombie & Fitch has announced it will do just that and take advantage of incentives to bring profits back into the United States. According to Christopher Svezia of Wedbush, the international retailers he follows are holding over $7 billion in cash overseas. Bringing the funds home creates an opportunity for increased share repurchases, helping brands like Foot Locker, Wolverine and Sketchers, to name a few.

The combination of tax savings and forecast of increased consumer spending caused Barclays to raise its rating on Target and Lowe’s stocks. The upgraded rating also stems from the fact that the two companies in particular have been able to find ways to minimize the competitive threat that e-commerce has had on their sales.

Will retailers invest to fine-tune existing technologies such as “order-to-shelf” and scan and go?

In early 2017 Whole Foods began an “order-to-shelf” system where food goes straight from a delivery truck to shelves, skipping the stock room. The streamlining system is intended to apply technology to better manage inventory, but has apparently left some shelves empty. We see stores investing in technology like Kroger’s “Scan, Bag, Go” system. Kroger announced that the service, which allows customers to use a scanner or an app on their phone to scan items and then pay through the app, will appear in 400 locations in 2018 (up from 25).

We will continue to monitor how retailers are using these expected tax savings.

Five Important Employment Trends for Massachusetts Retailers in 2018

Posted in Employment, Retail

Having survived the holiday shopping season, retailers should begin to prepare for any new employment laws that will go into effect in the coming year (and, of course, should ensure that they are complying with existing laws). This process can be even more challenging for retailers with stores in multiple locations, particularly if those stores are relatively autonomous.

Let us help get you ready for 2018.  Here are five important employment trends to watch in Massachusetts:

1. Equality in Pay Laws: Like laws in California and New York, effective July 1, 2018, Massachusetts’ Act to Establish Pay Equity promotes salary transparency, restricts employers from asking candidates about their salary history, and gives legal incentives to companies that conduct salary reviews. This law means employers cannot ban employees from openly discussing salaries with one another, but still gives employers the ability to protect confidential information of employees from their peers. Ultimately, the new law aims to create workplace environments where employees can talk about wage gaps and fight for employers to fix them. The new law also provides standards based on skill, responsibility, and effort to compare the work of two employees in the same role to determine appropriate salaries. Retailers should revise their job application forms to remove inquiries about salary history and should start training managers, particularly those at the store level, about the kinds of salary related questions they can and cannot ask job applicants. Retailers also should consider whether to perform a pay equity audit — which involves analyzing an employer’s pay data to determine whether there are disparities – especially if decisions relating to pay have been made less uniformly and at the store level.

2. Expansion of Reasonable Accommodations for Pregnant Workers and Lactation Laws: Effective April 1, 2018, Massachusetts’ Pregnant Workers Fairness Act requires most Massachusetts employers – including retailers –  to provide pregnant women and new mothers with “reasonable accommodations” for their pregnancies and prohibits discrimination against employees on the basis of pregnancy or a condition related to pregnancy, including lactation or the need to express breast milk for a nursing child for an open ended period of time. The new law also requires Massachusetts employers to accommodate pregnant employees in the same manner they are required to accommodate employees with disabilities (e.g., through more frequent or longer paid or unpaid breaks, time off to attend to a pregnancy complication or recover from childbirth with or without pay). Lactation accommodation can be challenging for retailers in small stores, as can scheduling and other related accommodations. Retailers should start planning now how they will address these changes on a store by store basis. The law also contains a notice and disclosure requirement – so retailers should be prepared with new policies and train managers on when they need to provide those policies to employees and how to implement them.

3. Employee Rights and Employer Obligations with Respect to Marijuana Use: Massachusetts legalized marijuana for medical purposes in 2012 and for recreational use in 2016. With the potential for more states to legalize the substance for either or both uses, retailers should consider how this trend will impact workplace protocols and drug screening policies, particularly in light of federal laws that have yet to decriminalize marijuana. Indeed, Massachusetts’ highest court recently held that the lawful use of medical marijuana may not automatically disqualify an applicant or employee from employment and that employers may be required to assess whether an employee or applicant is disabled and can be reasonably accommodated through the use of medical marijuana similar to other employees with disabilities. Retailers ought to review their personnel policies pertaining to drugs in the workplace and be cautious about their approach to pre-employment drug screening. Store managers should know that a drug test positive for THC or chatter about an employee’s medical marijuana card can no longer automatically result in an adverse employment action. Cristina Barbuto vs. Advantage Sales and Marketing, LLC.

4. Restrictive Covenants in Employment Based Contracts: Last year there were as many as 8 pending bills before the Massachusetts Legislature to address laws pertaining to restrictive covenants. These bills covered the following key issues: (i) the requirement that an employee be given advance notice of a mandatory non-compete; (ii) whether consideration (beyond the continuation of employment) will be required when non-competes are entered into after employment has commenced; (iii) the maximum duration of a non-compete; (iv) what power a court has to fix non-competes that are drafted too broadly; and (v) what types of employees should be insulated from non-competes. While retailers are unlikely to impose restrictive covenants on most store-level employees, high level buyers, merchandisers and designers may be appropriate for consideration. It is likely that the Legislature will revisit these issues in 2018 and may pass legislation that protects employees. Therefore, retailers who wish to implement restrictive covenants with certain employees before new laws are passed may want to act now.

5. Anti-Bullying Laws: For the better part of a decade, Massachusetts has been one of the more active states with the re-introduction of the anti-bullying Healthy Workplace Bill, which seeks to make unlawful workplace bullying and harassment without regard to protected class status. Although it is unclear whether the current version of the Bill will pass in 2018, the Bill gained traction in the Commonwealth last year and a handful of other states already have passed similar laws related to workplace abusive conduct. This is an issue that is unlikely to fade away and retailers may want to incorporate a workplace bullying component into any employee training sessions as a proactive measure against the harmful effects of workplace abuse.

While retailers have some lead time before most of these changes go into effect, implementing policies and training store managers takes time. Now is a good time to begin planning for changes in Massachusetts’ employment laws.

Rise of the Drones: Flying Over Newton and Registration Requirements Reinstated

Posted in Retail, Technology

The skies are a little friendlier for drones now that the Dutch police have suspended their squad of drone-hunting eagles. This is also great news for retailers, as drone popularity continues to soar with overall electronics sales.

With more advanced technologies available to consumers and drones rapidly filling the skies, the Federal Aviation Administration (FAA) and state and local governments are working to address safety, privacy, and other regulatory concerns. The Retail Law Advisor has been following these efforts for the last few years. Currently, 43 states have enacted drone-related laws and additional legislation is being considered.

Two recent developments have heightened the FAA’s regulatory authority over recreational and commercial drones.

Flying Over Newton

First, in September 2017, a federal court in Massachusetts struck down portions of a municipal drone ordinance. In Singer v. City of Newton, an individual drone operator challenged a local ordinance which required registration with the municipality before a drone could be flown over any portion of the municipality; required drones to maintain an altitude of least 400 feet over private and municipal property unless the operator received permission to fly lower; and prohibited any drone flights beyond the operator’s visual line of sight. The objective of this ordinance was to protect privacy and prevent nuisances and other disturbances. These concerns are not speculative, which the Retail Law Advisor has discussed in earlier posts.

Nevertheless, the court struck down portions of the ordinance because it intruded on the FAA’s authority to register pilotless aircraft and regulate the navigable airspace under the FAA Modernization and Reform Act of 2012. In addition, the court explained that the altitude restrictions effectively “eliminate any drone use in the confines of the city, absent prior permission. This thwarts not only the FAA’s objectives, but also those of Congress for the FAA to integrate drones into the national airspace.” The court did not address the ordinance’s provisions concerning reckless or negligent drone use and the use of drones for surveillance. However, the court explained that that state or local regulation of drone use was permitted in specific areas, including privacy and safety—as long as those regulations did not conflict with the FAA’s authority.

This decision is important because it represents the first challenge to a state or local drone regulation. Although the municipality initially appealed to the First Circuit Court of Appeals, it withdrew that appeal in December 2017. For now, Singer v. City of Newton affirms the FAA’s nationwide authority to regulate drone use. This should encourage continued growth in the drone industry by avoiding a patchwork of conflicting state and local restrictions.

Registration Requirements Reinstated

The second drone-related development is the reinstatement of FAA registration requirements for recreational drones weighing over 0.55 pounds. In 2015, the FAA issued regulations for small drones, including those used solely for recreational purposes. Federal courts in the District of Columbia struck those down regulations in May 2017 because the FAA lacked jurisdiction over toy and model aircraft.

That lack of jurisdiction is no longer the case. On December 12, 2017, Congress reinstated the FAA’s registration requirements in Section 1092(d) of National Defense Authorization Act for Fiscal Year 2018. Individual drone operators and retailers that sell drones to consumers should be aware of the FAA’s reinstated registration requirements:

  • Registration is required for the recreational use of Small Unmanned Aircraft Systems, or “sUAS.” These are “aircraft operated without the possibility of direct human intervention from within or on the aircraft” that weigh between 0.55 pounds (250 grams) and 55 pounds on takeoff, including everything onboard or attached to the aircraft.
  • Registration is available by mail or online through the FAA’s Small Unmanned Aircraft Systems (sUAS) Registration website: http://registermyuas.faa.gov/.
  • Registration requires only the registrant’s name, home address, and e-mail address. Registrants have the option of either providing their drone’s serial number or labeling their drones with an FAA-issued identification code.
  • After paying a $5.00 registration fee, individuals will receive a Certificate of Aircraft Registration, which is valid for three years and applies to all sUAS operated by the registrant.
  • As part of the registration process, registrants must acknowledge their intent to follow drone safety guidelines. The FAA also has developed a smartphone app called B4UFLY, which helps operators avoid restricted airspace.
  • Although there are some exceptions, commercial drones under 55 pounds may be registered through the FAA’s online registration system. Drones over 55 pounds, held in trust, or intended for operation outside of the U.S. still must register through the FAA’s paper-based process.

The Retail Law Advisor will continue to monitor this area as technological and regulatory developments encourage the growth of recreational and commercial drones and their applications.

Vitamin D and Retail: But Not Without Due Diligence First

Posted in Development, Landlords, Leasing, Retail, Tenant

We’ve all read about the question marks floating around the fate of brick and mortar retail in America. Factors like the strength of e-commerce and shifting consumer preferences (such as the popularity of urban centers over suburbia and consumers’ yearn for experiences over traditional shopping trips) are challenging landlords around the country to change the ways they think about their spaces. Some landlords are adapting to the current climate by repurposing the open area and common area spaces in their malls and shopping centers. The idea is not to replace brick and mortar retail, but rather to enhance it.

JLL surveyed 90 malls with approximate gross leaseable area in excess of 400,000 square feet that are in the process of, or have completed, substantial renovations since 2014. JLL found that nearly one-fifth of the 90 malls examined are incorporating spaces like kids’ play areas and green spaces that will benefit the community. Additionally, about twenty percent of the shopping centers studied are being redesigned as partially open or completely open air centers. These redesigns allow landlords to create malls with greater connectivity to streets and sidewalks and more green space for visitors to enjoy.

For example, in Houston, Texas, Memorial City Mall now includes a 4,000 square foot green area where community movie nights, watch parties and fitness classes are held. Brookfield Place in the Financial District in New York City hosts events in its atrium, boasts a skating rink in the winter and harbor activities in the summer. In Sacramento, California, the Downtown Plaza shopping mall became a basketball stadium and retail complex known as Downtown Commons with residential apartments and a Kimpton hotel. These redesigns have utilized both indoor and outdoor space to create micro worlds that cater to a diverse clientele for varying purposes.

But before landlords can embark on a complete overhaul of their space, they must confirm that their renovations will not cause them to be in default under any of their leases and related agreements with existing tenants. Often, tenants, and especially anchor tenants with bargaining power, are able to negotiate certain favorable terms in their leases. For example, an anchor tenant, like a department store, may have negotiated an exclusive so that they are the only tenant within the center that can sell certain goods or offer certain services for the duration of their tenancy. Those same tenants may have negotiated restrictions on the uses of neighboring tenants for broader uses like bowling alleys or movie theaters or restrictions on the signage of neighboring tenants. In certain instances, landlords may have agreed not to build higher than a certain height or disturb parking ratios. All of these restrictions may make it difficult for landlords to renovate and repurpose their space as intended. The planned upgrades at the Sunrise Mall in Northern California, for example, have been stalled due to existing tenants like Macy’s, J.C. Penney and Sears who have pointed to restrictions in their leases and reciprocal easement agreements to block development.

However, landlords too, may have some tools in their back pocket. For example, landlords may have negotiated relocation options in their leases entitling them to relocate tenants to new spaces of similar size within the retail center. This enables landlords to strategically rearrange tenants so that they can renovate and repurpose a critical mass of their center for things like green spaces. Landlords may also have the power to terminate leases if tenants are not meeting certain sales targets or harnessing enough foot traffic – a problem that is occurring all too often in today’s world. And, if all else fails, many landlords account for payment to anchor tenants in their redevelopment budgets.  In turn, anchor tenants often use the payment for renovations of their own.

In the end, however, repurposing shopping centers and malls to adapt to today’s consumer preferences seems like a win-win for all involved – making for a brighter experience for landlords, tenants and the community members served by these newly designed mixed-use, open air spaces.