PLEASE SUBMIT YOUR RESULTS TO THE HAWKINS NEGOTIATION

HARVARD BUStI{ESS scHooL

9-898-131 REv: $BPTDlttIER 21, 20t{

MI(.'HANI. WHRRI.PR

Discount and Hawkins Exercise: Confidential Instructions for Tenant

Instructions

You represent a major retail chain engaged in a difficult negotiation with the developer of a proposed new shopping centrer. Although you have worked out most of the key pncvisions of a long- term lease, your company and the developer at€ currenuy at impasse over the clause that would govern the allowable use, assignment, and subletting of the premises.

Your assignment is to make one last effort to break this impasse. If the developer insists on its proposed Erms, you witl kill the deal and seek another shopping cenbr in this region for your store. Before you abandon this projecb however, you should try to craft a soludon that would meet your intercsb but which you can also persuade the other side to accepl

Generd Background

The Merrimack Works, once a thriving glass factory on the ba*s of the Merrimack River in the town of Northport, Massachusetb, is the si0e of a new shopping mall planned by thwkirs Development ("Hawkins"). Ftrawkins is a small but reputable dcvelopment company founded about 20 years ago. Since then it has developed a number of successful officg commercial, and mixed-use proJc\cts, though the Menimack Works Mall would be Hawkint's largest venturc to date.

Flawkins recently approached Discount Marketplace ("Discoun('), a loading national retailer of discount soft goods-clothing shoes, accessories, housewares, gifb, etc.-as a possible anchor tenant for the mall. Reasonably well-known operations like Discount (which has more than 200 stores nationwide) draw customerc to a mall and thus encourage smaller satellits tenanb to locate there as well. Developers typically need signed leases from one or mor€ anchor tenants in order to get lenders to provide project financing.

The Merrimack Worls site is a good locatioru near the expressway that links Northport to metropolibn Boston. The local economy is reasonably strong though there is some concenr that conUnuing cutbacks ln ftderal defense spending may be felt by some indush:lal employers. The mall ibelf would coruist of approximately 350,000 square feet-84,000 of which would-be in the new Discount sbore. In this particular design" there would be only one major anchor, with the rest of the space occupied by much smaller retail stores.

Pm6esmr Ml<{uol Whrwh propred lhl$ ecerr{l* ti lhc hnrh for claee diruackrn rrthcr than b ttlutrrtp either Cfetiw or lneJfertlw hrrxtltng of an admlnbtn[\rc rltultion.

Copyrlght O 199, l9*,m,N4201{ by lhc Pnxidsrl and Pcltrows o{ Harvanl ColLjr.. To ordcr llpirs or rqu(rr Frrrnl$6lon lo n*pnxlutr* nuleriab, crll l-re9S7685, wrib Hennrd &r6tm Sclrool nrbbtring Boctoo MA @163, or 6o to nnj,,77www.-hUrp.lrernarU,oau. N" p.rt of thio.publi:ntion may be rcproduc4 e0orcd in a reEievat 6y8rc'rt urcd tn a EpredCr€et, or trrns-mitted ln any form or Ly any ,rlnnr-cleirq,ii nnchanical photo@Plh& tcording,orotherrvbe-wiltrout lhc pcmbbnof Haryard BurlftsSdrool

898,131 Dlocount and Hawklna Ц,xerd8で :Cわ nndeneJal lnattuctiona ror Tenant

As PIanS fOr the mau crystalよ 変d′ DscOunrs Cenerai COu出 産i and lhwttns's senior vice president began megodaばng a long‐te二 Ⅱ]lease for Dttountin he MerttRack Works pЮ

鮮 七 As a basis For he negoば atiOtt Discomt Presentt its sぬ ndard FOm iease to Hawk沌 .For the most Par与

鍋潔吼温F龍瑠継解駕駅ぱ器沼藍解樹驚i武鮒'講∵建 pemanentlendeみ which has not mised any sottOus obiecばOns sO Far.

穏 静 幾 群 押 鍵 1報 騨 猟 離 盤 爵 隷 報 輔 uttimately extend the period to tt years.Alhough the rentai agreemenL wih sateili俺 俺nants rema温 to be negoばa回′hey wiu be at si8nincanuy皿 gher per‐ square‐foot rates and wiu genemu/ mn for temns of 3 to 10 years.Hawmns has a ttn憔 岨ve lending commiment From a pension fund′ hough thと Is cOntingent On s∝ uring a″ Fimnceable leasざ w測にa cttditworthy anchor retailer,Iike ЫscounL Such ttnancing is typically for 10 years.

Neg。籠aばons bemeen Hawkins and DttOuntr∝ enuy got bogged down′ howeveL over he″ use, assignment and subleth8r Ciau策 、l h a nutthdL Discount sought terlns hat wOuld g市 e it signincant iadmde in what it can do with the premises. By conttstt Hawkins wanted臣

8htre敵的 ns on how the sPace would be used and who could use it.Theお sues raised by he use′ assignIHlent and subletting dause are far ttom面 宙al. When serious iegal dね putes arise between shopping center owners and heir nittr ttnttntt hey are ohen over pttdsely hese ttms.The

沼 肥 離 瀦

とPancular chutt wm ttgnhandy shape the ongoing確 皿 o礎mp礎脩 ∝n Haw節郎

Discount ittsぬken the position that botヽ ause of dunging ttaFketCOndittons and some uncerttinty about uus pardcular site′ it canmOt iOck iber ink)。 ne format over a lon3‐ term lease. hwkins has countered hat in order to atract sateMite tenanh and to saLrン :ぃ tendeL ule lease tems must

潔 髯選招鴛璃認恕ぎ認駕瑞譜舌配溜獄濫継〉を評博監イ結1稼 that Dscownt w工I色y tO capmre heircustomers by inttduttg ntt g∞ ds and PrOduc皓 .

Ыscounrs″ standard″ lense From whlch he parues have been working lndudes he Following clause:

2 Use,Assittnment and SubleHin史 .The premises herett demised may be used for any :awFul pばPoseo Tenant Enay aSsign this iense or sublet the whole or any part of the deHlised

PrenliSes′ butifit does so′ it sllall rettah liable and rttpolisible under uus iease。

The negotiattons betveen Hawkins and ttcOunt had ttn genettIIy productive to ttb pomtt as

beatt the begimdng Of a lontttem business reladonshiP′ but nOW here L a chillin he air.Discount

鰹駐常など;二:電総艦 逮iCl紹絲:跳rl幣詔置絲EttS♯ 瑶燃解龍 偽Ⅱowing ciause:

コm耐OA pertttod on the PrOmb∞ .An″ぃ 18nttnr prou敵 m ule Pttnjtt lo nnoett enuげ For the ril11 1lnle― ninin岳 。n陣

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2

DI箕ouneand Hawkana Exe鷲 :ae:COnftdential lnatrucuo郎 For Tenane S98‐13a

The Tenant may use hese p― ises only in a maginer consと tent wih itt son gOOds rettil opemuon as d(斑 dbed herein for he term oF tms tea`燈 .The Tenant may nOt ass18n or suЫ etthese Pttmises h whOle orin Part tO any other vendor or entity withoutthe pHOr wtttten aP,ЮVal of heI´andiom,

旅 絆 穏 温 !鶏 翠 協 幣 許 与ギ慧 需 such a tOng term. Convorsely′ even if Discount were wttling to substanttnⅡ y sweeben the base rent or pettentage agreemenし dOing so wOuld not meet Hawki1ls′ s stated needs. In shOrt his issueと a potendal donl‐ breakeR

who wOre not di,電 〔uy invoivod in he 触dばal

駕名::駕鳥罵R評諮継幣報鍵

辮 韓螂機諄 脚鰍里I冊鞘

erson and realize that there wiu be no deal unless

饂温評潤・К my耐 蜘ym呻

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韓椰観龍鰈噛輝

Confidenttal lttornia伍 om for the Vice President Norheast Reがo恥 DiscOult MttkettlaCe

織 締斌靱 曇1護紳 報機輻雄 The broad language hat yOu proposed h Ardcle 22 ren∝ ts both your concem abOut the l∝ al

ittf謎絲鵜I∵協鞘in解鴛縄 ionger― Discount needs neだ bttty to deal前 ul

unt cannot agree to lease tems that could seriously

丁熙 ミ献隠 :R解継:ぞ罵訛謎 協縄驚r払渚謎紹瀦 糀孟銘鷲軍批I.I蠍緒Υ語承認沼温毬縣監:紹恕辮淀駅話驚紹 絲 mainttining titt Operadon.Nevetthe烙彬Dttount su‖ mttht benent by havhg dttredon to suЫ et some ofitt space or to nlOdiら

'iL use as itlearns more abOut he ttste and buyhg ha防 偽of 10cal

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併hレ

3

898・191 D`質ount and Hawttin8 BXerd確 :GonfldentinI InaerudBOna For Tettnt

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ii:iiictivemarketo MOreover′ hett WOuld be seriOus P帯

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f°r lDiScounrs adverdsing′ much OF widch is nattonwide and assuHnes a sttndard alix oF

融端瀾ユ灘鰯醐 欄oP。)You wou盟 劇に to have similar la甑 血de in the new Me面mack Works Mau′ hough underthe d籠 loPers propOsed da叫 ,Such inittadves might be FegaFded aSchnβ

in use,

For these ttasOils and undOubtedly mOre),Discount has iにluded Article 22 in ttL soでali頷

認 慧訂、農1絲君脇浮鴇t靴 電 “監濯H農駐≒言継潔蹴Jall温托盤汚considemble power in these situadOns. It is true

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れ n r lたave

'お orrePottyOur resu二

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Ыd you reach agreement?____Y∝ _____No

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