Just in time for Halloween: The terrifying tale of how a business owner’s rights were determined by things like Halloween candy and canned tuna.
An important option in your commercial lease is the “exclusive use” provision. This provision is an agreement by the landlord that you (the tenant) are the only tenant who can provide a certain product or service in a multi-tenant space. This protects your business from competition in the same location, like a shopping center or strip mall. Even if you are successful in negotiating the inclusion of an exclusive use clause in its leases, your business may not have the level of protection that you think it does.
Take the example of Thiftway Supermarket. The lease protected Thriftway from competition that provided the “sale of food or food products intended for off-premises consumption.” Specific exceptions were made for:
- One bakery selling home-style baked goods baked by the proprietor.
- One delicatessen store containing facilities for table services not to exceed 2000 square feet.
Seems pretty specific, huh?
Now comes the scary part. Flash forward about 40 years. National Wholesale Liquidators (NWL), a discount department store, entered the same property as Thriftway. NWL sold clothing, electronics, closeout goods, cleaning supplies, furniture, and nonperishable food items. Because of their industry, NWL sold seasonal foods, like discounted Halloween candy.
Thiftway sued for breach of its exclusive use provision. NWL and the landlord argued that Thiftway waived its rights because other smaller tenants (Blockbuster, GNC, the Dollar Tree, Rite Aid, and Penn Mart Liquors) sold snacks and seasonal foods like Halloween candies for years without objection.
In a 32-page opinion about a variety of products, the court found Thiftway waived its right to complain about Halloween candies and other nonperishables like dry pasta. The court’s opinion turned on such minute details like whether the orange juice being sold was refrigerated or not.
The idea of a bunch of other stores already selling canned tuna also swayed the judge’s opinion as to who should have the right to be in the shopping center and what they could sell.
The Morale of the Story
Your commercial lease is an investment in the future of your business. You need to enter into it very carefully. Back in 1965, a tenant like Thiftway would not have predicted it would be in court over who had the right to sell Halloween candy, dry pasta, orange juice, and canned tuna in 2005. Take the time to get it right before you sign on the dotted line. The best way to do that is with sound legal advice.
Want more information? Dodge Legal helps small businesses understand and negotiate their commercial leases. We even have a Tenant Pre-Signing Flowchart of Events to educate you about the process before you sign your lease. Contact Dodge Legal for more information.