Malls are always looking for that big-name anchor tenant. This hasn’t changed even in today’s e-commerce world. What has changed is the anchor tenant. It’s no longer Macy’s or Sears. Today’s anchor tenants are increasingly large entertainment and other lifestyle venues, like ice skating rinks, indoor waterparks and go kart operators, food experience locations and fitness centers. Who else needs 800,000-sq.-ft. of retail space? 

The problem is: this new tenant means a new type of real estate risk for the mall owner/operator. 

A mall’s increased liability is based on three material changes to their existing real estate risk: activity, security and greater foot traffic. Mall owners and operators should revisit their general liability and property insurance, based on the following considerations.   

Activity – Putting an indoor ice rink in the place of a Saks Fifth Avenue store, or a performing arts center in place of a big box retailer, both lead to greater real estate risk. Small changes in tenant activity over time won’t likely affect insurance premiums or liability coverage, but the above examples could pose a major material change in risk. In situations like these, go back to your general liability insurance carrier and communicate changes to them. While the result might be higher liability limits and a higher premium, you’ll need it if there’s a claim. 

Consider how other changes in venue activity will heighten risk, including bringing in cooking equipment, or retrofitting the back-of-house infrastructure needed to support a restaurant space, a cooking course or demonstration operation. Sometimes it’s the equipment, other times the activity, and sometimes both, that pose a heightened real estate risk. 

Security – If the large tenant space is now a billiard, restaurant or bar with nightlife, customers could congregate while potentially intoxicated – all after hours while the rest of the mall’s retail stores are closed. Friction among neighboring tenants could also become a security risk. To prevent this, tenants should be vetted and placed near like-minded businesses. For example, an Equinox gym might bring the type of clientele a high-end retailer is looking for. 

If the tenant is a marijuana dealer (a growing trend), the owner/operator should consider what type of clientele this will attract, and if there will be large cash deposits in the store at any given time, which could pose a heightened security risk as well. 

More occupants -  Entertainment venues will bring increased foot traffic to the mall, as opposed to a legacy department store. Consider both the number and the variety of customers that will frequent the space. If a waterpark tenant will attract more kids and families, or a billiard will attract a more questionable clientele, the liability you assume will vary. Discuss significant changes in a customer profile with your insurance carrier as well. 

Look for ways to transfer the risk 

There are two ways for a mall owner/operator to transfer risk. One, by being properly insured, and the other, through tenant and vendor contracts.  

First, make sure you have the right general liability and property insurance, and limits for your total risk. Work with your HUB broker to ensure you’re adequately covered. 

Second, consider transferring risk via contractual agreements with tenants or vendors, especially when it comes to high-risk activities. When determining if this is feasible, ask yourself: Who is managing the venue? If the tenant is a go kart operation, for example, owned and run by an independent retailer, accidents that happen within the space should fall under the retailer’s liability policy. However, if the mall owner/operator started the go kart venue, but hired a management company to run the operation, the owner could be held liable for an accident. Consider stating conditions of risk in the contract, stipulating which they are liable for, and which the mall owner/operator are liable for. Always have contracts reviewed by legal counsel, because something as minor as punctuation or a specific word could alter its interpretation in court.  

As mall real estate continues to change and evolve, staying on top of your liability is critical to meeting the needs of your tenants and their customers. Contact your HUB broker to ensure you’re adequately covered for your mall’s new real estate risk.