Parking Spot or Four-top?
We are now almost two years into the COVID-19 pandemic and can glimpse the future to understand the changes throughout our society. Parking facilities hosted some of the most important COVID-19 facilities. I’ve personally drafted license agreements to convert surface parking lots to field hospitals, testing facilities, vaccine clinics, and drive-through movies. While some of these uses were temporary and no longer necessary, others will persist and may end up as permanent features. The parking lot as restaurant is here to stay and change requires an understanding of legal implications.
Taking Inside Outside
Social distance requirements forced the acts of drinking and dining to move from indoors to outdoors. Tents popped up with tables below. Restaurants that could pivot to utilize their outdoor space for hospitality were able to endure. For restaurants and shops without outdoor space, the closest outdoor spaces were annexed for commercial purposes resulting in the prevalence of “streeteries.” Evolved from the “parklet” or “pop-up” park concept, the streetery is a new part of the landscape in downtowns.
Generally, the streetery is defined as an outdoor dining establishment, frequently under a tent or canopy structure and sometimes equipped with heaters. In New York City, I’ve witnessed streeteries with high-end finishes, intricate lighting, and built-in point of sale systems demonstrating significant investment in what would otherwise be a temporary improvement. The temporary streetery is now becoming a permanent fixture in the public space. In many downtowns, the streetery has been annexed to the sidewalk, on-street parking spaces, or off-street parking lots. What are the legal implications?
Legal Implications
First of all, who gave permission to build the streetery? If the use of the space is meant to be temporary or seasonal, a recommended approach is to grant a license. A “license” is defined as a personal privilege to do some act on the land of another. A license is the legal term for the grant of permission to enter, occupy, or use real estate subject to specific terms. The license agreement provides the most flexibility in the duration and terms for the use of public facilities for other purposes.
A license will often require a “license fee” for the specified use by the licensee. If the licensee is using the public facilities for the benefit of the public, e.g., COVID-19 testing facility, the license fee can be nominal or waived entirely. If the public facilities are being used for private profit, the license fee should reflect that use. If a restaurant is taking up on-street parking spaces, the restaurant is generating revenue derived from the real estate, while the municipality is losing money from lost parking revenue. Any negotiation for a license fee should take this balance into account. Moreover, a license can be non-exclusive, so multiple parties have entitlement to use the same space.
Considering the Use
If the appropriated parking space is not seasonal, will be used long-term with significant investment in fixtures, and will be for the exclusive use of one party, a more robust agreement may be necessary. Rather than a license, a lease can often imitate fee simple ownership if the acquisition of title is to be avoided.
A “Ground Lease” is a lease of real estate where the lessor pays all property charges regularly incurred through ownership. Oftentimes, the ground lease will have a long duration to provide the same benefits as fee simple ownership by allowing for the development of long-term facilities and the right to maintain the facilities for the duration of the ground lease. While title does not transfer from a lessor to a lessee, the parties to a lease can negotiate all terms of use of the real estate and improvements including duration, rent and restrictions on use.
The duration of a lease is commonly described as over one year but less than twenty years. Once a lessee takes occupancy of the “demised premises” under the terms of a lease, the lessee gains certain legal rights broadly defined in contract law and subject to the regulation of landlord and tenant laws in different jurisdictions.
Continuing down the spectrum, if the streetery will be a permanent extension of a business with complete exclusivity and significant investment in the improvements by the user, the parties should consider a conveyance of the land in fee simple. When the user of real estate pays consideration for exchange of a deed, the new owner receives “fee simple ownership” of the real estate. The “fee simple” title is an interest in land, being the broadest property interest allowed by law. Title to real estate described as “fee simple” includes the entire “bundle of rights” of a property. Ownership of real estate is often described in legal terms as control over a collection of specific property rights, including: the right to possess and occupy land; the right to mortgage land; and the right to lease or sell the land. Fee simple ownership is often described as “absolute” only subject to the power of the government to create restrictions through police powers such as zoning, taxation or eminent domain for public purpose. In the streetery example, an important legal consideration is the conversion of public property to private property and the ability to tax the real estate in new private ownership. ◆
