Seven Tips for Licensing Space to Kiosks

U.S. retail sales dropped 2.8 percent in October, and analysts don't expect the situation to improve anytime soon. The bad news has owners all over the country wondering how they're going to maintain a steady stream of revenue during this dismal holiday shopping season. Some are banking on kiosks—small, independent stands that sell merchandise—to supplement their income. But this approach, if not handled properly, can be more trouble than it's worth, says Minnesota attorney Barry W. McKee Jr.

On the plus side, letting kiosks set up in your building can be quite lucrative. Because the set-up is small, these temporary tenants can usually pay more per square foot than other tenants. Also, because the kiosks use the space around them in addition to the space they rent, you can make them pay a disproportionate share of CAM costs.

On the other hand, one of the biggest problems that you're likely to encounter is opposition from your core tenants—tenants that lease space in actual storefronts or offices, says McKee. Core tenants typically don't want kiosks anywhere near their space, and often complain about the following:

• Kiosks are unsightly and reduce the common areas;

• Kiosks have an unfair advantage because of their prime locations; and

• Kiosks attract crowds that cause congestion in the common areas and divert attention away from in-line stores.

Regardless of complaints from your core tenants, you ultimately have to do what's best for your business. Here are seven tips to help you take advantage of kiosks without upsetting tenants.

Tip #1: Agree to License, Not Lease

If you decide to let kiosks set up in your building or center, avoid signing a lease. Instead, agree to grant a license without a set term. As a licensee—the license agreement's equivalent of a tenant—the kiosk has no “leasehold interest” in a space. This makes it easier to reclaim the space at any time—with or without notice.

Also, make sure that the license is non-transferable and revocable, as you don't want the kiosk attempting to transfer its license to another entity, warns McKee.

Here's some Model Language you can use in your kiosk license agreement—make sure you show this and all our Model Language to your attorney before using it in your agreements.

Model Language

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

Tip #2: Get Kiosk to Acknowledge License Agreement Isn't Lease

If the licensing agreement resembles a lease and the kiosk, for whatever reason, has to make that argument in court, the court might side with the kiosk. Then the kiosk will be treated as a core tenant, and you will lose your right to revoke the agreement without notice. To protect yourself, 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 as a “tenant” against you as a “landlord” under a “lease”; and

• If a court rules that the license agreement amounts to a lease, you are entitled to exercise 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:

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

b. 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

c. Licensee expressly waives any substantive or procedural rights that Licensee may have that are predicated upon this agreement being treated as a lease.

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.

Tip #3: Specify Kiosk Area

Most kiosks are mobile. Therefore, it's important that you clearly define where the kiosk should be located. If you don't, you could end up dealing with a kiosk that tries to take advantage of foot traffic patterns and conveniently relocates itself without your approval. Attach a copy of the floor plan to the licensing agreement and highlight the designated area.

Model Language

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

Tip #4: Control Kiosk Construction

Some licensees have a recognizable brand and want to build their own kiosks. If you agree to this, make sure the license agreement requires the kiosk to get your approval of construction plans and specifications. You want to preserve the right to ban a kiosk's design if it clashes with the look of your building or center.

Model Language

Licensee, at its expense, at all times, should keep the interior and exterior of the Kiosk Area 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 inconsistent with the aesthetic appearance of the Center. The decision of Licensor to disapprove of such plans shall be conclusive.

Tip #5: Limit What Kiosk Can Sell

As part of the licensing agreement, have the kiosk provide a list of the items that it plans to sell in your building or center. Make sure that the items meet your approval and don't conflict with any other agreements with other tenants. This is especially important because you don't want to undermine and alienate a core tenant.

Tip #6: Bar Kiosk from Interfering with Tenants, Customers

Make sure you don't allow the kiosk to operate its business in a way that interferes with your other tenants, occupants, and customers. Also, require the kiosk to adequately control and supervise its employees and guests.

Tip #7: Get Right to Immediately Revoke Kiosk's License

Be sure to add language to your license agreement that gives you the right to immediately revoke the kiosk's license for any reason and stop it from doing business at your building or center, without notice. You also want the right to deny access to the kiosk's employees and to remove them and the kiosk's property without notice or a court order.

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.

Insider Source

Barry W. McKee Jr., Esq.: Law Office of Barry W. McKee Jr., 200 S. 3rd St., Stillwater, MN 55082; (651) 329-4047.

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