VRN, May 2015

Outlet Lawsuits Highlight the Need to Update Leases

By: Lori Kilberg, Benno Rothschild, and Katherine Silverman

One of the distinguishing features of outlet leases is the specific requirement in use provisions that the majority of the merchandise must be offered for sale at discounted rates. This is done to support the value proposition of the outlet center, but defining “discount” can be troublesome. Many leases require that a certain percentage of merchandise be sold at a substantial discount from similar items in full-price stores. Some lease provisions even require dual pricing on the ticket, whereby tenants must show both the Manufacturer’s Suggested Retail Price and the discounted outlet price. Although the requirement begets a price-to-price comparison for the same or similar goods, merchandise sold in today’s outlet stores is no longer limited to last season’s full-price items, close-outs or seconds. Outlet inventory now often includes merchandise specifically made for the tenant’s outlet chain…

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