Give Tenant Limited Right to Consent to Changes to Center's Governing Document

Issue to Negotiate

If your center is like many, you may have signed a “governing document”—such as an operation and easement agreement (OEA), a reciprocal easement agreement (REA), or a declaration of covenants, conditions, and restrictions (CC&Rs)—with the owner of an adjoining center or a tenant of a freestanding building at your center. A governing document typically places certain restrictions—such as parking, use, signage, or construction restrictions—on your center. For example, it may set up an architectural control committee whose approval is required whenever you want to make alterations to your center or your tenants' spaces. Although a tenant isn't a party to the governing document, should you give it the right to consent to any changes that you want to make to the govern- ing document?

Owner's View

You'll argue that you should have total control over any changes to the governing document—without interference by a tenant. After all, you run the center, not the tenant. And you're in a better situation to know what's best for the center—the tenant is only out for its own interests.

Tenant's View

A strong tenant will argue that getting the right to consent to any changes to the governing document is necessary to its business. After all, it could end up getting hurt by the change. For example, if the change requires that you undertake a major construction project at the center, some of the construction costs might get passed through to the tenant.

Compromise: Give Tenant Limited Consent Right

Denver attorneys Bonnie Larson-de Paz and Neil B. Oberfeld recommend using this strategy as a compromise if you're negotiating with a strong tenant: Give the tenant the right to consent to any proposed change, in a governing document—including its proposed cancellation—only if the change will “materially adversely” affect the tenant's rights or obligations under its lease. Make sure you're in charge of the final determination of what's materially adverse, they say. So if the proposed change has only a beneficial or minor bad effect on the tenant, you don't need the tenant's consent, says Oberfeld. Also, make sure that the tenant's consent can't be unreasonably withheld, conditioned, or delayed, adds Larson-de Paz.

Model Lease Language

Landlord shall not amend, modify, or terminate the [insert name of governing document, e.g., Operation and Easement Agreement] without the prior written consent of Tenant if such amendment, modification, or termination would materially adversely affect in Landlord's sole opinion any rights or obligations of Tenant under the Lease. Tenant's consent shall not be unreasonably withheld, conditioned, or delayed.

Practical Pointer: If a tenant balks at using the term “materially adversely” as a threshold, you could define the term as changes affecting visibility, access, or economic provisions, says Oberfeld. Also, a savvy tenant will try to delete the phrase “in Landlord's sole opinion” from the language. In response, propose changing the phrase to “in Landlord's reasonable opinion.”

CLLI Sources

Bonnie Larson-de Paz, Esq.: Senior Associate, Isaacson, Rosenbaum, Woods & Levy, PC, 633 17th St., Ste. 2200, Denver, CO 80202; (303) 292-5656.

Neil B. Oberfeld, Esq.: Member, Isaacson, Rosenbaum, Woods & Levy, PC, 633 17th St., Ste. 2200, Denver, CO 80202; (303) 292-5656.