Reciprocal Easement Agreements
A reciprocal easement agreement (REA) sets the terms for development and use of a property with more than one owner. Common uses include the development of commercial properties such as shopping centers, shopping malls and office complexes. The contract passes on from owner to owner, in perpetuity.
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Common Scenarios
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REAs guide use and development of a commercial complex with more than one owner, where one owner functions as developer and the others function as retailers, i.e. major retailers such as Sears or JC Penney. Owners also use REAs if a retailer wants to purchase part of the property from the developer or when two or more property owners want to jointly develop their properties but, none function as a retailer. In all scenarios, the REA governs construction, building compatibility and common area use. Filed in the county of the property's location, the contract applies to subsequent owners of any or all of the development so, once constructed, the commercial complex operates as an integrated retail project.
Easements
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The REA provides all parties basic rights for operations related to access and parking, encroachments and utilities through the creation of easements. Each party has access rights to the other parties' properties for vehicular access and parking, as well as pedestrian access. For example, customers can park anywhere in the shopping mall parking lot regardless of the retailer they plan to visit. Parties will also share utility systems, usually with retailers tying into the developer's utility systems. Parties also have encroachment rights for items such as canopies, signage or foundations.
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Construction and Design Compatibility
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Normally, the developer constructs on- and off-site improvements of the commercial complex, while other parties included in the REA construct their building, i.e. the major retailers. The other parties reimburse the developer for a portion of the complex's on- and off-site improvements. Each party reviews and approves the designs for the others' construction to ensure architectural cohesion. The reciprocal easement agreement also provides for a mutually-approved construction schedule.
Common Area Operations
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The agreement specifies a party for maintenance and operations of the complex's common areas, usually the developer or a manager hired by the developer. The manager bills each party for the maintenance and a management fee. The retailer retains the right to assume common area maintenance if the developer or its agent performs poorly.
Monetary and Maintenance Obligations
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The reciprocal easement agreement also requires each owner to pay their property taxes and purchase insurance on the building. Every involved party maintain the buildings' appearance. In the case of casualty events, the owners may raze their building or rebuild. Generally, reconstruction of common areas falls to the developer but, in some cases, all owners may contribute equally to rebuilding the common area improvements.
Allowable Use and First Offer Rights
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A REA may require the parties to use the property in a specified manner or restrict the developer's use. If a party ceases the specified use for a pre-set time period, i.e. six months, for reasons other than exceptions in the REA, such as remodeling, the developer has first offer rights, meaning he has the right to make an offer for purchase before a third party's right to buy it. The developer may make a fair market value offer for the property. If the two parties can't agree to a price, the owner can sell it to an unaffiliated third party.
Terms, Covenants and Amendments
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The terms of the REA transmit from seller to buyer, so whoever owns the property must adhere to the agreement's conditions. This area of the agreement specifies the method for amending the REA. The agreement provides easements in perpetuity for public street access surrounding the complex and utilities.
Lender Protections
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The reciprocal easement agreement also provides protection for the parties' lenders. If one party defaults on its loan, the non-defaulting party must notify the defaulting party's lender so it can remedy the default. It also provides that a breach of any part of the REA does not invalidate a lender's lien.
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