Considerations When Developing Outparcels in Retail Projects

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Adding outparcels or pads to a retail project can add significant monetary value to the development. In many instances, end users may also prefer acquiring an outparcel in an established retail project over acquiring and developing a standalone site or purchasing or leasing land as part of a new development. The ability, however, of a developer to ultimately sell an outparcel for its maximum value, or an end user to use an outparcel successfully for the end user’s business, often depends mostly on the legal status of the outparcel, and the rights, appurtenances and restrictions granted to, or imposed on, the outparcel as part of the initial development of the project. This article provides suggestions for developing retail projects in a manner that will help facilitate the sale or ground leasing thereof without unexpected delays or costs. In many instances, if the specified suggestions are not followed at the initial development stage, the ability to sell or ground lease an outparcel may be precluded entirely or require great difficulty or expense to accomplish.

Legal Lots -

Often it is not legally necessary as part of the initial governmental entitlements for a retail project to cause any outparcels included therein to be legal lots. However, at the initial stage of development, the costs of creating legal lots are usually relatively inexpensive when coupled with the applications for the rest of the needed entitlements or approvals. In almost all instances, when developing a retail project, it is also a good idea from a value and future development perspective to create a legal lot through the recordation of a plat or map, or other jurisdictionally dictated process. Among other things, legal lots or parcels are required in some states to obtain entitlements needed for the operation of a business. In other states, like California, land cannot be sold lawfully unless the land being conveyed is a separate legal parcel. Legal parcels are also helpful, and sometimes necessary, to cause the land in question to constitute a separate tax parcel and/or to ground lease it. Having multiple legal lots as part of a retail project (as opposed to having a project made up of a single legal parcel) can also provide a developer or owner with additional flexibility if the developer needs or wants project financing.

Originally published in Retail Law Strategist—The Problem-Solving Tool for Retail Law - Summer 2013.

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Topics:  Contract Drafting, Land Developers, Leases, Outparcels, Retailers

Published In: Commercial Real Estate Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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