A Reciprocal Easement Agreement (REA) is typically used when a commercial shopping center property is owned by more than one person or entity, and these persons or entities want to develop the property as an integrated shopping center.
The most common scenario is that one of the owners acts as the developer and the other owner is a major retailer (such as Target or Wal-Mart). If the major retailer desires to purchase a portion of the commercial property, it will be necessary for the developer and the major retailer to enter into an REA. If not, there will be no contractual agreement between the developer and the major retailer governing such things as the construction of the shopping center, the architectural compatibility of the buildings, and the use of the common area. Without an REA, the developer or the major retailer could build whatever and whenever it wishes and could conceivably prevent the other party from using its parcel for parking, access or utility lines.
If the developer and the major retailer enter into an REA, it is recorded by the parties in the county in which the commercial property is located and will create certain contractual obligations between the developer and the major retailer that will enable a shopping center to be constructed. Once constructed, the shopping center is operated as one integrated retail project. These contractual obligations follow the property. If any part of the property is sold, any subsequent owner will be subject to the obligations contained in the REA and will benefit from those rights.
Items Typically Associated with a Reciprocal Easement Agreement (REA)
1. Easements for Parking, Access, Encroachments and Utilities.
Each party should have the right to access the other party's property for vehicular parking and access and for pedestrian access. Each party may also need to access the other parties' utility systems. Also, the parties may need certain encroachment rights if their canopies or foundations encroach upon the other party's property. All of these rights would take the form of "easements" and would have to be set forth in detail in the REA. These "easements" would effectively allow one party non-exclusive use of the property of the other party.
2. Construction and Architectural Compatibility.
The REA will typically provide for the developer to construct all of the on- and off-site improvements for the shopping center, as well as those relevant to buildings to be located on the developer’s property. The major retailer will be responsible for the construction of the major retailer's building. The REA typically provides for each party to review and approve the plans and specifications for each party's work, thereby creating architectural compatibility for all of the construction work at the shopping center.
3. Operation of Common Areas.
The REA should provide for one party to operate, insure, and maintain the common areas of the shopping center. That party would usually be the developer or a third party manager appointed by the developer. Typically, if the developer does a poor job operating and maintaining the common area, the major retailer will have the right to "take over" the operation and maintenance of the common areas located on its property, and sometimes this take over right may be extended to the entire common area in the shopping center.
4. Taxes, Building Maintenance, and Building Insurance.
The REA typically requires each property owner to pay the property taxes that relate to its property. In addition, each party is also required to maintain the appearance of the buildings on its property in an attractive manner.
5. Use, Recapture Rights, and Rights of First Offer.
Some REAs may require the major retailer to use its property for a particular use or may restrict certain uses on the developer property to the benefit of the major retailer. In the event that the major retailer is required to use its property for a particular use and then ceases to do so for a specified period of time, the developer may be given the right to purchase the major retailer's property for its fair market value.
Contact David Collins at 562.694.4920 or firstname.lastname@example.org if you have any questions about Reciprocal Easement Agreements (REA) for a Shopping Center.