2024 Retail Wrap-Up: Musings on AI and More

At the end of each year, many of us ponder whether our current resolutions were achieved and what our resolutions should be for the year to come. Of course, resolutions should be achievable and not simply aspirational. With that in mind, and from the neutral posture, a few thoughts regarding lease aspirations (and I must admit that sometimes I laugh when reading clauses that are wholly out of date).

Leases and related documents, like letters of intent (“LOIs”), need to be updated from time to time to embrace current realities. It always amazes me, for instance, that many landlord leases were drafted before the turn of this century and that for some reason, much like a comfortable blanket, they are not updated to match current retail trends and realities. Leases can be tweaked in some cases. For instance, does the lease properly incorporate that artificial intelligence (“AI”) will be utilized in many aspects of property management? Can these charges be properly expensed? Is AI, for leases with caps on increases in operating expenses, a controllable or an uncontrollable expense? If the AI expense is shared over numerous projects and subject to a markup, should there also be an administrative charge in the Operating Expense provision?

Similarly, and in leases with a marketing charge, what platforms might be used most effectively? Does the lease include paying social influencers? Or the use of TikTok? And surely, from the tenant perspective, is there text that notes that the use of tenant’s intellectual property must be both correct and positively promote the brand?

It might be worth a moment to look at the construction document. Is it current? Does it properly reflect current building and environmental concerns? Is the allocation of cost between landlord and tenant correct?

And, lastly, does the LOI include the most important terms to the parties, from the tenant perspective as well as the perspective of the landlord? Too often, the LOI omits critical issues and the longer the lease (assuming potential option periods), the more likely the LOI does not properly include predictable events. Issues like relocation, guarantor liability, and co-tenancy adjustments too often do not reflect potential predictable events that might arise.

No doubt the best companies in the retail world spend time making sure that their documentation is thoughtful and forward thinking. Sure, speed to rent commencement is a wonderful goal, but so too is a smart lease that minimizes unpleasant consequences down the road.