Get 14 Key Protections When Licensing Portion of Center's Lot for Business Activity

If you're like most shopping center owners, you're always looking for an innovative way to earn additional revenue at your center, boost traffic, increase the tenant mix, create excitement, and drum up positive publicity for your center. You can achieve all of those goals by letting a business use a portion of your outdoor parking lot for any one of a variety of business-related activities, such as boat sales, book sales, car sales, Christmas tree sales, fireworks stands, or even as a Halloween pumpkin patch. Because these activities typically last no longer than a few days, you'll negotiate a license agreement rather than a lease.

You may already have license agreements with “licensees” (the parties getting licenses) for using an area inside an empty store or within the hallways or other interior portions of your center—for example, for setting up kiosks and carts. But letting a licensee use a portion of the center's parking lot—even for just a day or two—has special risks that require special protections. For instance, if you're not careful, the parking lot licensee could end up damaging the lot, blocking access to and from the center, or taking over your tenants' designated parking spaces.

If you're willing to let a licensee use a portion of your parking lot for business-related activities, make sure you include 14 key protections in the parking lot licensee's agreement. We'll give you Model Language that has those protections and that you can adapt to your situation. (You also may decide to put some of these protections in your center's rules and regulations.)

14 KEY PROTECTIONS

Make sure your license agreement with a parking lot licensee gives you these key protections:

[ ] Grant Very Limited License

Grant the licensee only a “nonexclusive, revocable, and nontransferable license” to operate in a designated portion of the parking lot, which is subject to the terms and conditions set out in the license agreement, says Evelyn S. Leonard, in-house counsel for Levin Management Corporation. Because the parking lot is vitally important to your center, you need maximum control over it. By making the license “nonexclusive,” you can grant licenses to other parties that have a right to use that area under leases or other agreements, she says. “Revocable” means that you can take back permission to use that portion of the parking lot, at your discretion, she explains. And “nontransferable” bars the licensee from transferring the license to anyone else.

Model Language

Subject to the terms and conditions set forth herein, Licensor hereby grants to Licensee a nonexclusive, revocable, and nontransferable license for the use of and right to occupy the License Area, as defined herein.

[ ] Identify License Area and Require Your Approval on Size, Dimensions, Location

Identify a specific location for the “license area”—that is, the limited portion of the parking lot covered by the license. This will prevent the licensee from using a prime parking location and taking up lots of parking spaces, which could anger your center's tenants and their customers. Consider limiting the license area to an out-of-the-way portion of the lot, which takes up as few parking spaces as possible, says Leonard. Also, limit the size of this license area to a maximum number of square feet so that you can better control how many parking spaces will become unavailable when the license area is in use, Leonard advises.

Make the exact size, dimensions, and location of the license area subject to your approval. State that the licensee must give you, by a set date, more specific plans that show a rendering of the license area with its size, dimensions, and location, she says. If the licensee doesn't get your written approval of its plans within a set number of days after they're submitted, the license agreement will become immediately void, she adds.

Model Language

The license shall apply to the area located within the “crosshatched” portion of the parking lot, as indicated on the site plan as Exhibit [insert #] attached hereto, and whose size, dimensions, and exact location (the “License Area”) are subject to the approval of Licensor. Licensee shall submit plans of the License Area, for Licensor's approval by [insert date]. Such plans must include, without limitation, a proposed rendering with proposed size, dimensions, and location of the License Area. In no event shall the License area exceed [insert #] square feet of the parking lot. If Licensee does not receive Licensor's written approval of such plans within [insert #] days after their submission, this License Agreement shall become immediately null and void.

[ ] Limit Licensee's Use of Common Areas

Don't give the parking lot licensee the right to use other portions of the center's common areas, except as a way to get access to and from the license area, advises Leonard. For example, while the licensee could use the center's sidewalk to get to and from the license area, it can't use the center's common areas to store or exhibit its merchandise, she explains.

Model Language

Licensee shall have no right to use other portions of the Shopping Center's Common Areas for any purpose except for ingress and egress into and from the License Area.

[ ] Have Licensee Accept License Area ‘As Is’

You shouldn't have to spend money repaving or repairing the parking lot just so a licensee can use it for a few days, says property manager Richard F. Muhlebach. Require the licensee to accept the license area in its “as is” condition, advises Leonard.

Model Language

Licensee acknowledges that it accepts the License Area in an “as is” condition without any obligation of Licensor to repair, repave, or make replacements.

[ ] Don't Provide Utilities or Services to License Area

Don't agree to supply any services or utilities to the license area. Make the licensee solely responsible for supplying services and utilities, says Leonard. This way, you won't be held accountable if they're inadequate or become interrupted.

Model Language

Licensor shall not be required to supply to Licensee any services or utilities for the License Area. Licensee shall arrange directly with all utility companies for meters, and pay all required costs of establishing utility service and all utility services furnished to or consumed by Licensee.

[ ] Require Licensee to Keep License Area Clean

Make the licensee responsible for keeping the license area neat and clean, and free of debris and trash, says Muhlebach. That responsibility should include policing the other portions of the center's common areas on a daily basis to pick up any papers, fliers, and other debris originating from the licensee's business, says Leonard. It's also important for the licensee to keep the license area in good order and repair, so that you're not left with a cracked or otherwise damaged lot, she notes. This is different from an indoor license area, where you might supply janitorial services to help keep the area neat, clean, and attractive.

Model Language

Licensee shall keep and maintain the License Area and the surrounding area, including any equipment serving the License Area, neat, clean, and free of debris and trash, and in good order and repair. Licensee shall also police the other portions of the Shopping Center's Common Areas on a daily basis to pick up any papers, fliers, and other debris originating from Licensee's business.

[ ] Prevent Licensee from Taking Up Too Many Parking Spaces

Don't permit the licensee to use the license area in a way that would take up too many parking spaces. This includes using any portion of the parking lot outside the license area for commuter parking, long-term parking for excursion trips, or anything other than routine customer parking. For example, the licensee must not sell tickets to or stage a music concert in the license area, says Leonard. Otherwise, there may not be enough parking spaces left for your tenants and their customers. Also, the licensee must not be allowed to interfere with the normal business operations at the center, she adds.

Model Language

Licensee shall not engage in any activities in the License Area, including, without limitation, the sale of tickets for, or the staging of, transportation or entertainment events, which would result in the use of the Shopping Center parking area for commuter parking, long-term parking for excursion trips, or purposes other than routine customer parking, or which would interfere with the normal business of the other stores in the Shopping Center.

[ ] Prevent Licensee's Deliveries from Interfering with Center

The licensee will likely get deliveries. To prevent its delivery trucks from disrupting your center and parking lot, restrict deliveries to a designated entrance and have the trucks park in a specified location, advises Muhlebach. Also, state in the license agreement that the licensee can't allow its delivery trucks to interfere with your tenants' businesses, adds Leonard.

Model Language

Licensee shall require its delivery trucks to use designated service entrances and park in service areas located [insert location, e.g., behind] the License Area. Licensee shall not allow its delivery trucks to interfere with the business of tenants and other occupants in the Shopping Center.

[ ] Make Licensee Responsible for Trash Removal

You don't want the licensee's trash strewn all over the parking lot. Therefore, require the licensee to put its trash in containers within the license area for collection, to monitor its trash, and to arrange and pay for the trash disposal, says Leonard. Allow the licensee to get a separate Dumpster for its trash, but make sure that it's kept clean, frequently emptied, and placed within the license area, adds Muhlebach. Bar the licensee from burning any trash or debris at the center.

Model Language

Trash and debris should be removed from one part of the license area, and placed in special containers in another part of the license area for removal. Licensee shall supply and install trash containers of adequate size, arrange for disposal of trash and debris, and police the [insert location, e.g., rear] of the License Area and around the trash containers. Licensee shall maintain within the License Area a trash Dumpster of a size approved by Licensor, at Licensee's sole expense. Licensee shall empty the Dumpster as often as necessary (but at least [insert frequency, e.g., daily]) to avoid overloading, leakage, spillage, pest and rodent problems, and unsanitary conditions. Licensee shall not burn any trash or debris of any kind in or about the Shopping Center.

[ ] Control Location of Licensee's Parking Spaces

Specify where the licensee, its officers, agents, and employees can park their cars so that they don't take up spaces designated for your tenants or their customers, says Muhlebach. For example, you could require them to park in a designated employee parking area. Make the licensee agree to give you the license plate numbers of its employees' cars, if you request them. This way, you can monitor where those employees are parking, he explains. Require the licensee to use its “best efforts” to prevent its employees from parking their cars in any other areas of the lot, adds Leonard.

Model Language

Licensee, its officers, agents, and employees shall park their automobiles only in those parking areas which Licensor from time to time designates as employee parking areas. Licensee shall, upon request, furnish Licensor with license plate numbers of automobiles of Licensee and its employees. Licensee will use its best efforts to prevent its employees from parking their cars in any area other than those designated.

[ ] Require Licensee to Keep License Area Well Lit

Require the licensee to keep the license area well lit during its hours of operation, plus one additional hour (as customers may delay in leaving the license area), says Leonard.

Model Language

Licensee shall keep the License Area fully lighted during its required hours of operation, plus one hour.

[ ] Control Amount of Merchandise in License Area

Require the licensee to store or stock in the license area only those goods and merchandise that it intends to sell there, says Leonard. You want the license area to be a sales area, not a storage area for goods the licensee doesn't intend to sell, she explains.

Model Language

Licensee shall warehouse, store, and/or stock in the License Area only such goods and merchandise as the Licensee intends to offer for sale at retail, in, at, or from the License Area.

[ ] Bar Sales of Alcoholic Beverages and Dangerous Materials

Bar the licensee from displaying, distributing, selling, or storing any alcoholic beverages and dangerous materials without your prior consent, says Muhlebach. Customers who consume alcohol in the license area could become rowdy, disruptive, or dangerous. And dangerous materials in the license area could damage people and property.

Model Language

Licensee shall not display, distribute, sell, or store any alcoholic beverages or any dangerous materials without the prior written consent of Licensor.

[ ] Require Licensee to Remove Equipment at End of License

Require the licensee to remove, at its sole expense, its equipment and any other property at the end of the license term, and repair damage, if any, to the parking lot, says Leonard. If any equipment or property is left behind, it should be deemed abandoned, but the licensee will remain liable for the cost of removing and disposing of it, she adds.

Model Language

On the Expiration Date or earlier termination of this License, Licensee shall quit and surrender the License Area in good order and condition, and at Licensee's sole expense shall remove its equipment and any other property, and repair any and all damages caused by such removal. Any equipment or property not removed shall be deemed abandoned; however, Licensee shall remain liable for the cost of removal and disposal.

Practical Pointer: These 14 key points assume that the licensee will conduct a small business-related activity in your center's parking lot. If it will instead conduct a big business-related activity—such as a circus or amusement park—in your lot, you'll need to address safety and security issues, too, says Leonard.

Include Standard License Agreement Provisions

The parking lot license agreement should also include protections and requirements typically found in your standard form of license agreement for licensees that will use an area within the hallways or other interior portions of your center, say Leonard and Muhlebach. For example, your parking lot license agreement should, among other things:

• Give you the right to revoke the license on short notice;

• List the licensee's required hours of operation;

• Require the licensee to pay a license fee and security deposit, get needed permits and approvals, and comply with the law;

• Indicate where notices are to be sent;

• Set restrictions on the licensee's signage;

• Bar or limit assigning and subletting by the licensee;

• Require the licensee to have adequate property and liability insurance, and indemnify—that is, reimburse and defend—you against third-party claims;

• Bar the licensee from making noise or creating offensive odors, and altering the license area;

• Give you the right to enter the license area to make repairs, improvements, or additions;

• Spell out your remedies if the licensee defaults; and

• Limit your liability to your interest in the land and buildings making up the center.

Insider Sources

Evelyn S. Leonard, Esq.: Vice President-Gen. Counsel, Levin Management Corporation, N. Plainfield, NJ

Richard F. Muhlebach, CPM, SCSM: Senior Managing Director, Kennedy Wilson Properties, Bellevue, WA