How the Law Can Better Protect Small Business Owners Against Location Risk in the Brick-and-Mortar Retail Sector

Abstract

This Article examines how the law can help reduce retail vacancy rates in volatile urban real estate markets. Two potential drivers of high vacancy rates along retail corridors in otherwise healthy real estate markets are identified: (1) location risk, and (2) positive feedback effects. The inclusion of a percentage rent provision in a commercial lease better allocates location risk, especially for small business owners, than fixed rent. In some cases, the formation of a joint venture between landlord and retail tenant may represent the optimal response to location risk. To address positive feedback effects in which each storefront vacancy increases the likelihood of an additional storefront vacancy, a case is made for limited, narrowly tailored government intervention. This Article considers other legislative responses to the problem of vacant retail storefronts, including vacant property taxes, commercial rent control, and zoning reclassification, and examines the advantages and disadvantages of each.