News outlets recently reported on the demise of retailer Toys R Us in bankruptcy. Initially, it was thought that the famous chain toy store would continue operations under its bankruptcy plan. Then, those in charge of the company found that it was necessary to close all locations. Such a decision has profound ramifications on the commercial property and leasing market throughout the United States. This post will address the legal issues raised by the closure of Toys R Us locations.
Most likely, the locations occupied by the stores were not owned by Toys R Us, but were leased under long term leases. Commercial leases typically are long term arrangements, for about ten years with potential options to renew. Of course, during such leases, the economy or style of doing business may change, leading to a lease arrangement that is no longer viable or sensible for the tenant. For instance, with the rise of online shopping in recent years, the need for tenants to have large locations in relative proximity to one another no longer makes sense. It may become necessary for the tenant to renegotiate a lease when times change and the business model along with it. Experienced counsel should be involved in any such lease renegotiation for a modification or amendment as the case may be. In exchange for an amendment or modification, the landlord may ask for concessions from the tenant.
In considering Toys R Us in the area served by our firm , one may be familiar with a location on Central Avenue that was built specifically for the store. The owner of the property may have issues with the store abandoning the property, as it may be suited only to this tenant. The landlord may need to become creative in considering the future use of the space, as did the owner of Lord & Taylor’s flagship location.
Commercial leases typically have “go dark” provisions when stores are located in shopping malls. Such a provision states that if a store goes out of business or reduces its hours in a manner inconsistent with the other mall stores, that it constitutes a lease default and allows the owner of the mall to potentially recapture the space. The reason for this is that the vitality of the shopping mall depends upon all of the stores being draws for one another. Ordinary shoppers visit malls potentially for one store, see another store while there and spend money at the second store. As such, it is very important for mall owners to discourage vacancies and require uniform store hours in their leases.
Our attorneys observe changing market conditions in our area, so that advice can be rendered in lease renegotiations.