Who Can Use The Common Areas In A Mixed-use Project?
Abe Schear and Sarah Hale

Abe Schear

Importantly, each consideration has its own sponsor (who perhaps has its own public relations component and/or political agenda). The landowner, the asset manager, the lender(s), the contract providers (parking, electricity, etc.) and, of course, local government authorities each have their own agenda for the common area. The developer must define and enunciate its vision for common area use as a first step to managing these competing demands.

The pre-planning could not be more important. Unlike the standard retail or office development, a multi-story, street-dedicated, outdoor mixed-use development will be extremely difficult to remodel and the initial “spin” is critically important. The residential units must be sold, the office space must be leased and the retailers must understand why they should buy into the project. Their decision to buy, lease or invest will be influenced by the developer’s common area plan.

The well developed, clearly defined project will carry its mission statement through in all communications — oral, written and graphic. For instance, even before there is a handbook or a press release, renderings — talking boards — should show the quality of the project, who is going to frequent the project and how the different interests will inter-relate. This graphic depiction, when coupled with the media presentation, is critical when setting forth the vision and conveying this vision to competing interest holders.

The local government, essential to the development of a mixed-use project, is often one of the first to comment on, object to, or influence the developer’s plan for common area use. It is important early on for the developer and the governmental entity to engage in frank discussions in order to evaluate the various goals. Recognizing that these goals are not always in alignment, each side needs to understand the other and the political and economical paradigm that the mixed-use project presents.

When dealing with the municipality it is important to set forth the style of the project, who will use it (and who will not), what common area will be dedicated to the public as perhaps a park or meeting area, what programs will be offered for the public and how they might facilitate the government’s goals, what transportation will be available to the facility and, what, if any, areas will be dedicated to public service (police and/or fire). This is, of course, no different than the developer making a proposal to a needed tenant (its economic partner). The developer must understand why and how the project addresses the government’s needs, just as it addresses the tenant’s needs.

If the developer cannot clearly enunciate who will use the common areas, it will be difficult for the developer to provide plausible estimates regarding the costs to maintain and manage the common area. In today’s era of controlling costs and including common area charges, this is a major consideration. For instance, a holiday festivity (July 4th or Christmas) or a major event will produce extra common area expenses. Who is responsible for any shortfall?  Are these “controllable” or “uncontrollable” expenses? If the landlord has provided the tenant with a “capped” charge, what will happen if there is a shortfall?

Finally, the developer needs to be very analytical regarding what is media “puffing” and what is included in the lease. For instance, the construction handbook need not contain project characterization representations (e.g., “first class” or “high end”). Through the handbook, these representations may be inartfully and very incorrectly incorporated into the lease and landlord/developer needs to be sure that the entire lease, not just the text to the signature section, be analyzed for accuracy.

In sum, the use of the common areas is anything but linear. Different groups will use different components at different times and, when coupled with different leases and private agreements, many building users may feel that their share of the common area charges is anything but proportionate. While each landlord has the right to set forth its cost allocations in the manner it see fits, any allocation which is, in the various tenant’s opinion, disproportionate will be a problem — either in terms of leasing or in terms of collection. When the actual use of the common area by the tenant(s) is overlaid with the public use component, the project will make its own unique statement, a statement which can be impactful. This statement needs to be balanced with careful economic pro formas, ones which accurately address the information required by the lender, i.e., where the revenue will in fact come from to reimburse landlord for all of the obligations which have been agreed to amongst the myriad of interested parties.

Abe Schear and Sarah Hale are attorneys with Atlanta-based Arnall Golden Gregory. They can be reached by e-mail at abe.schear@agg.com and sarah.hale@agg.com.