Monday, September 27, 2010

NJ Courts upholds Premium Outlets radius restrictions.

An appeals court today upheld deed restrictions that were designed to discourage some tenants at two out-of-state outlet malls from opening new stores at a proposed mall in Sussex County.

Despite the setback, Howard Buerkle, managing partner of the Secaucus-based Sussex Commons, said the 328,000-square-foot, 90-store project in Frankford would go forward.

"A lot has happened since we filed the appeal. There are a lot more tenants in the entire industry," he said. "The ruling is just a speed bump on the road of life."

Chelsea Property Group, of Roseland, imposed the "radius-clause" restrictions on some of its tenants at Woodbury Commons Premium Outlets in Central Valley, N.Y., and The Crossings Premium Outlets in Tannersville, Pa. about a year after Sussex Commons proposed in 2002 to build a $60 million mall at the junctions of routes 206, 15 and 565, known locally as Ross’ Corner.

The "radius-clause" restrictions, ranging from about 35 miles to 65 miles, attempt to discourage retailers from opening new stores within a certain distance from their current locations or face higher rents. Rent amounts in shopping center leases often include a percentage of the retailer’s sales at that location. Frankford is about 50 miles from Woodbury Commons and 100 miles from Tannersville, Pa.

The appeals court said the restrictions do not prohibit retailers from opening new stores near their current stores or at Sussex Commons.

"The purpose of the clause is to compensate defendant (Chelsea Property) for anticipated lost sales if the tenant opens an outlet store within the radius or at the specific site," according to the 25-page court ruling.

The decision noted that Sussex Commons, which had claimed the clauses were "anti-competitive," contained radius clauses in its own lease proposals to prospective tenants.

"A radius clause, which is commonly used in leases in the outlet center industry, protects landlord’s market trade area from competition, the landlord’s interest in percentage rent and the exclusivity of the landlord’s mix," the ruling states.

Buerkle declined to say when Sussex Commons Lifestyle Outlets may open, saying construction was contingent on getting approvals for a sewage treatment facility at the site.

"Without a sewage plant, the project is going nowhere," he said.

SOURCE: Joe Moszczynski/The Star-Ledger

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