Cover 14 Key Points in Kiosk Agreement

If you're like many shopping center owners, you make optimum use of your common areas by letting kiosks—that is, free-standing retail outlets—sell merchandise there. Kiosks, which are typically located in the center's main walkways or parking lot and are highly visible to shoppers, can be very profitable for you.

But despite the financial benefits to your center, kiosks can also create problems for your tenants, which means problems for you. Here's a rundown on the benefits and problems, prepared with the help of California attorney Thomas D. Morell, Toronto attorney Harvey M. Haber, and New Jersey attorney Marc L. Ripp. We'll also provide a checklist of 14 key points that you should cover in the agreement you sign with a kiosk. Doing so can help you reap the benefits and avoid the problems.

Financial Benefits of Kiosks

There are several financial benefits in letting kiosks set up at your center. For instance, you can charge a high minimum fee, says Haber. Because a kiosk needs only a small amount of space (say, 100 to 200 square feet), it can afford to pay more per square foot than other tenants, he explains. And because a kiosk uses not just its space but the browsing space around it, you can ask it to pay more than its share of CAM costs, he says. As a result, kiosks often pay several percentage points more than other tenants selling the same goods, notes Haber.

Problems with Kiosks

The biggest problem you face with kiosks is that most in-line tenants hate them. They don't want kiosks in front of—or anywhere near—their stores, says Haber. And anything that bothers tenants can create big problems for you.

Tenants' opposition might stem from jealousy over a kiosk's superior location. Or they may be afraid that the kiosk will cut into their business. Here are some common arguments that tenants might raise, Haber says:

• They reduce the common areas, which should always remain the same.

• They attract crowds that cause congestion in common areas and divert attention from nearby stores.

• Their prominent location gives them an unfair advantage in competing for shoppers.

• They detract from the center's appearance.

A strong tenant may force you to agree not to put a kiosk near its store, says Haber.

14 Key Points for Kiosk Agreement

Call Agreement a License, Not Lease

If you want to let a kiosk use space at your center, call the agreement you sign with it a license—not a lease, advises Morell. That can make it easier to oust the kiosk if you need to take back its space—or “kiosk area”—quickly, he says. As a “licensee”—the license agreement's equivalent of a tenant—the kiosk has no “leasehold interest” in a space. If the license agreement doesn't have a set term, you can revoke the kiosk's right to use the space at any time, with little or no notice, Morell explains. But if you sign a lease with the kiosk for space in the center and the kiosk tenant violates the lease and fails to cure—that is, correct—the violation, you must take legal steps needed to terminate the tenancy and get back possession of the kiosk area, says Morell. That could take a long time, he warns.

Make sure the license agreement grants a license that's non-transferable and revocable. This will stop the kiosk from transferring its license to anyone else, says Morell.

Model Language

Licensor hereby grants to Licensee a non-transferable license to occupy and use, subject to the terms set forth herein, the Kiosk Area (as defined herein).

Have Kiosk Acknowledge License Agreement Isn't Lease

Bear in mind that if a license agreement looks too much like a lease and the kiosk argues to a court that it's a lease, a court may treat the license agreement as a lease. You'll then lose your immediate revocation right, and risk being found to have violated laws that protect tenants, says Morell. To better protect yourself against this, Morell suggests that you have the kiosk agree in the license agreement that:

• The license agreement isn't a lease;

• It won't sue you or argue in court that the license agreement is really a lease;

• It waives all rights it may have against you as a “tenant” under a lease; and

• Even if a court rules that the license agreement is really a lease, you've got all of the rights of a “landlord.”

Model Language

Licensee specifically covenants and agrees for Licensor's benefit, and as a material condition to this Agreement that:

1. Neither this Agreement nor any of Licensee's rights in connection herewith shall constitute a lease, whether of the Kiosk Area or otherwise;

2. Licensee shall not bring any action against Licensor or interpose any defense against Licensor based upon the theory that this Agreement constitutes a lease; and

3. Licensee expressly waives any substantive or procedural rights that Licensee may have that are predicated upon the rights of a tenant of real property.

Notwithstanding the provisions of the foregoing sentence to the contrary, should this Agreement be deemed by any court, governmental authority, or quasi-governmental authority to constitute a lease, in such event Licensor shall have all of the rights and remedies of a landlord of real property available at applicable law.

Specify Kiosk Area

It's important that you describe the kiosk area as clearly as possible, says Ripp. Since a kiosk is mobile, you don't want it moving to any location in the common areas other than the one you intended, he warns. Attach a photograph or floor plan showing the kiosk's location as an exhibit to the license agreement. And highlight the location on the photo or floor plan. Then there will be no doubt as to where the kiosk must stay, Ripp says.

Model Language

For purposes of this License Agreement, the “Kiosk Area” shall mean that portion of the Center containing approximately [insert #] square feet, as more fully depicted in Exhibit [insert #] attached hereto.

Bar Displays Outside Kiosk Area

Make sure that the kiosk is barred from displaying or selling any merchandise outside the kiosk area, says Haber. You don't want the common areas to look too cluttered or make it difficult for shoppers to walk by, he explains.

Model Language

Licensee shall not store or display any signs or merchandise outside the Kiosk Area.

Keep Control Over Kiosk's Construction

The licensee may want to build its own kiosk. This can help it foster customer recognition—especially if it runs kiosks at more than one location. If you agree to this, make sure the license agreement requires the kiosk to get your approval of construction plans and specifications, says Morell. You want to be able to bar a kiosk's design that clashes with the look of your center.

Model Language

The interior and exterior of the Kiosk Area must be aesthetically pleasing and consistent with the architectural style of the Center. Licensee agrees to submit all plans for construction, the display of merchandise, and decoration in the Kiosk Area to Licensor; and Licensor has the right to disapprove all or any part of such plans if, in the sole judgment of Licensor, such plans would result, in whole or in part, in an appearance not aesthetically pleasing to Licensor or not consistent with the aesthetic appearance of the Center. The decision of Licensor to refuse approval of such plans shall be conclusive.

Practical Pointer: It's especially important to make sure that the proposed kiosk won't obstruct shoppers' views of tenants at your center, says Haber. So set height restrictions on the kiosk, he advises. Also, bar the kiosk from blocking any of the passageways or entries to the tenants' stores, he adds.

Limit What Kiosk Can Sell

Get a list of the items the kiosk plans to sell at your center, says Morell. If the items meet your approval (and don't conflict with those of another kiosk or tenant), put this list in the kiosk's license agreement and restrict its sales to only those items, says Haber. This is important because you want to maximize the sales of all your kiosks and tenants. You don't want one's sales cutting into another's. Nor do you want a kiosk to violate a tenant's exclusive, Haber warns.

Set Kiosk's License Fee

Make the kiosk pay a “license fee” for using the kiosk area (rather than “rent”) to avoid making the license agreement seem like a lease, says Ripp. The license fee figure could include a minimum fee, a share of CAM costs, and percentage fee based on gross sales, says Morell. It may be most efficient to combine the minimum fee and CAM costs into one charge, rather than charge them separately, Ripp points out.

When is the license fee due? With a longer-term tenant, the answer is easy: Rent is due on the first day of every month. But if a kiosk wants a short-term license, you may want it to prepay the entire license fee when it signs the license agreement, Ripp advises. This also protects you if the kiosk never occupies the space or decides to leave before the end of its intended stay. Alternatively, you can make part of the entire license fee due every day, once a week, every 15 days, or at any arbitrary interval, he adds. These alternatives will mean more administrative expenses for you than an up-front payment. But it can be the best way to go if the kiosk can't afford the full up-front payment before it begins selling its merchandise, Ripp explains.

Model Language

Licensee shall pay Licensor a [daily/weekly/monthly] sum of $[insert amount], starting on [insert date] and continuing on a [insert frequency, e.g., weekly] basis as a license fee during the Term (the “License Fee”).

Practical Pointer: Also, require the kiosk to pay late fees and interest charges if it doesn't pay its license fee on time, as you would with a typical store tenant, says Ripp.

Set Garbage Rules and Removal Charges

Require the kiosk to keep its garbage inside the kiosk area in designated containers and to dispose of it as you direct, says Morell. You don't want its garbage littering other parts of the common areas. And if you provide garbage removal services to keep the kiosk area clean, then make the kiosk pay for those services as an additional fee, he adds.

Model Language

All garbage and other refuse shall be kept inside the Kiosk Area in the type of container specified by Licensor and, if directed by Licensor, shall be placed outside the Kiosk Area and prepared for collection in the manner and at the times and places specified by Licensor. If Licensor elects to furnish or designate service for the removal of garbage and other refuse, Licensee shall use the service furnished or designated by Licensor. If furnished or billed by Licensor, Licensee shall pay for such service on a [insert frequency, e.g., monthly] basis as an additional fee hereunder.

Make Kiosk Responsible for Janitorial Service

Make the kiosk responsible for providing janitorial service on a regular basis so that the kiosk area is kept neat and clean. You don't want any unreasonable risk of injuries to shoppers who walk by the kiosk, Morell explains. Say that if the kiosk fails to provide the janitorial service and you have to do so instead, the kiosk must reimburse you for the cost of those janitorial services, he says.

Model Language

Licensee shall provide all janitorial service and customary cleaning and redecorating in the Kiosk Area on a regular basis so that the Kiosk Area is kept neat and broom clean in a manner consistent with the standards established for the Center by Licensor. In the event that Licensee fails to perform such janitorial and cleaning service on a regular basis and up to the standards established by Licensor, Licensor, at its option, may contract for such service on behalf of Licensee. If Licensor elects to provide janitorial and cleaning service, Licensee shall pay Licensor for the cost of such service on a [insert frequency, e.g., monthly] basis as an additional fee hereunder.

Get Big Security Deposit

Get a security deposit from the kiosk, advises Ripp. How big should it be? There's no set formula, but make sure it's adequate to cover any unpaid fees, cleaning costs, or damage caused by the kiosk, says Ripp. The security deposit should be big enough to induce the kiosk to leave the common area in good order when it removes its kiosk. Also, protect yourself if you're forced to use any of the security deposit because the kiosk didn't properly perform its obligations under the license agreement. So require the kiosk to immediately replenish the amount of the security deposit, he says.

Model Language

1. Licensee shall deliver a Security Deposit of $[insert amount] to Licensor upon the execution of this Agreement; and such Security Deposit shall be held by Licensor without liability for interest and as security for the performance of Licensee's obligations under this Agreement.

2. Licensor may, from time to time, without prejudice to any other remedy, use all or a portion of the Security Deposit to make good any arrearages of any Fee owed hereunder, to repair damages to the Kiosk Area caused by Licensee, to clean the Kiosk Area upon termination of this Agreement, or otherwise to satisfy any other covenant or obligation of Licensee hereunder.

3. Following any such application of the Security Deposit, Licensee shall pay to Licensor on demand the amount so applied in order to restore the Security Deposit to its original amount.

Bar Kiosk from Interfering with Tenants and Customers

Don't let the kiosk conduct its business in a way that creates too much noise or interferes with the center's other tenants, occupants, or customers, says Ripp. Odors and noise in the common areas may bother shoppers.

Also, require the kiosk to adequately control and supervise its employees and guests, says Morell. You don't want the kiosk hiring young, inexperienced, part-time help who act unprofessionally, he explains.

Model Language

Licensee shall conduct its business and control and supervise its agents, employees, and invitees in such a professional manner so as not to create any nuisance or interfere with, annoy, or disturb tenants, occupants, or invitees of the Center.

Bar Unapproved Signs and Ads

Make sure that the kiosk won't install signs or distribute advertising anywhere at your center without your consent, says Morell. You don't want the kiosk's signs to detract from the look of your center or common areas. Make sure all signs and décor conform with your center's rules, and are kept clean and in good order. Also, get the right to remove any signs that violate your center's rules, he says.

Model Language

1. Licensee shall not place or permit to be placed anywhere on or in the Kiosk Area, any sign, decoration, lettering, advertising matter, or descriptive material without Licensor's prior written approval. Licensee shall submit to Licensor reasonably detailed drawings of its proposed signs for review and approval by Licensor prior to utilizing same.

2. All signs, awnings, canopies, decorations, lettering, advertising matter, or other items used by Licensee shall conform to the standards of design, motif, and decor, from time to time, established by Licensor for the Center, and shall be insured and maintained at all times by Licensee in good condition, operating order, and repair.

3. Licensor shall have the right, without notice to Licensee and without any liability for damage to the Kiosk Area reasonably caused thereby, to remove any items displayed or affixed in or to the Kiosk Area that Licensor determines to be in violation of the provisions of this Paragraph.

Get Right to Immediately Revoke Kiosk's License

Get the right to immediately revoke the kiosk's license for any reason and to stop it from conducting business at your center, says Ripp. And say that you don't have to give the kiosk any notice before revoking its license. You also want to be allowed to deny access to the kiosk's employees and to remove them and the kiosk's property without notice or a court order, he says.

Model Language

Licensor, in addition to having the right to immediately revoke this License without serving notice to Licensee, shall have the immediate right to remove Licensee and any persons claiming rights under Licensee and their property from the Center and to bar Licensee and all persons claiming rights under Licensee from access to the Center.

Practical Pointer: If the kiosk prepays the license fee and you revoke the license before the end of the license agreement, expect the kiosk to demand that you refund some of the license fee, says Morell. He suggests that you refund only the unamortized amount of the license fee remaining as of the date you revoke the license. To calculate this, amortize the license fee on a straight line basis over the original term of the license agreement, he says.

Keep Any Additional Remedies

Also, make sure you're allowed to resort to all other remedies that the law may give you—including the right to sue for any outstanding fees, says Morell. You should also be allowed to enter the kiosk area without being sued by the kiosk, he adds.

Model Language

Licensor shall have all other remedies available to Licensor at law or in equity, including, but not limited to, the immediate recovery of all fees payable to Licensor under this License. All rights and remedies of Licensor are cumulative. Licensor may enter the Kiosk Area without being liable for prosecution or any claim for damages.

Practical Pointer: Elsewhere in the license agreement, require the kiosk to reimburse you for your expenses—for example, attorney's fees—if you're forced to take action against it because it violated the license agreement, says Morell.

What Else Should You Leave in or Out of License Agreement?

Make sure the license agreement also includes other key requirements similar to those set out in your leases. For example, the license agreement should at least require that the kiosk carry insurance (including a waiver of subrogation in your favor), indemnify you from third-party claims, get all required governmental permits, leave the space in good condition at the end of the term, and be open during the center's hours of operation, says Ripp. But the license agreement probably won't give the kiosk any remedies against you or rights if the center is destroyed by a fire, he adds.

Check with your attorney about what should be included in—and left out of—the license agreement.

CLLI Sources

Harvey M. Haber, QC: Partner, Goldman Sloan Nash & Haber LLP, 250 Dundas St. W., Ste. 603, Toronto, ON M5T 2Z5; (416) 597-3392; haber@gsnh.com.

Thomas D. Morell, Esq.: Bosso Williams, 133 Mission St., Ste. 280, Santa Cruz, CA 95060; (831) 426-8484; tmorell@sclawfirm.com.

Marc L. Ripp, Esq.: Counsel, The Gale Company, 100 Campus Dr., Ste. 200, Florham Park, NJ 07932; (973) 301-8057; MRipp@thegalecompany.com.