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Lease Due Diligence

By Mark Morfopoulos

When several parties ' usually a developer and one or more retailers who own land adjacent to the developer ' desire to make integrated use of their respective properties, they can enter into a Reciprocal Easement Agreement (REA, which may also be called a Construction, Operation and Reciprocal Easement Agreement, COREA). Both REA and COREA are terms that describe a type of agreement that can be used to control the development, use, and maintenance of several parcels of land. They impose obligations that “run with the land.” Thus, the respective owner-landlords will be subject to the restrictions of, and benefit from, the rights contained in a REA. This also means that prospective tenants may benefit from, and be subject to, a REA's rights and restrictions. Therefore, it is not only the lease itself that can affect the rights and obligations of a landlord and tenant; REAs, and other agreements made by third parties (who have interests that may or may not coincide with those of a tenant), can change the whole dynamic of a leasing transaction.

Note, however, that quite often it may not be obvious that several owners control a particular project. Because the construction, operation, and use of the property are governed by a single agreement, it may seem that it is owned by one entity. To determine if property is affected by an REA, carefully review a title report to see what covenants and restrictions apply. Only then will you know if an REA could impose unwanted restrictions on leased property.

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