I’ve struggled over this Blog entry more than any of the ones that have preceded it. That’s probably because I’m not comfortable with how to balance the legitimate needs of both a landlord and its tenant.
Certainly, without a tenant having a remedy for a breach of an exclusive use right granted in that tenant’s lease, the “grant” is mere surplusage. On the other hand, it isn’t always something a landlord did or didn’t do that is responsible for the breach. So, that’s one dividing point – was the landlord “bad” or just another innocent victim?
And, on top of deciding if the landlord was “bad” or “innocent,” there is the question of whether a landlord should have some time to “fix” the problem. If the answer is “yes,” then “how long,” and does the tenant get any kind of relief while waiting to see if the problem gets “fixed.” I’m not going to get to those questions (or others) in this entry.
Once that is settled, what should the actual remedy or choice of remedies look like? That’s for later, as well.
A starting point is to look at what might be an “innocent” breach. In common parlance, the parties often talk of “what if the exclusive use right is breached by a ‘rogue’ tenant.” I think this means, by “an unprincipled, deceitful, and unreliable person; a scoundrel or rascal.” Some in the Retail Real Estate world would say this definition fits lawyers, but that’s also for another day. Basically, the issue is what happens if the landlord’s lease with a rogue tenant actually and clearly forbids the rogue tenant from engaging in the protected activity? This then implicates the question of: “what steps would a landlord have to have taken so that the competing tenant is really a ‘rogue’”?
That goes back to the original lease where the exclusive use right is drafted. If it is written in the form of: “Landlord shall not permit any other tenant or occupant at the Shopping Center to sell or display widgets,” then who is or is not a rogue tenant will be hard to discern. Short of physically blocking the portals to the “rogue’s” store so as to prevent any sales and to keep any “forbidden goods” from being seen, no tenant or occupant is a “rogue” because, to be a “rogue,” you need to be unprincipled, deceitful, and unreliable; a scoundrel or rascal. If you had no obligation to avoid selling or displaying the target merchandise, then you aren’t a “rogue,” at least not in this context.
So, the first principle this seems to expose is that to distinguish between a rogue tenant situation and a landlord-created situation, you have to start with defining exactly what the landlord is obligated to do. There are a lot of ways to do this, one of which is to require that the landlord “not give possession of all or any portion of the Shopping Center to any occupant unless that occupant holds under a written lease specifically including the following text: ‘Tenant shall not sell, rent or dispense widgets at the Shopping Center or display widgets for sale or rental at the Shopping Center or permit or suffer the selling, renting or displaying of widgets at or from the Demised Premises.” Of course, before anyone jumps on this already challenged writer, the lease will have carve-outs for earlier leases and perhaps for certain kinds of tenants, etc., etc. It isn’t my intention to craft a full lease clause, only to set forth an illustrative principle.
Now, the concept continues as follows. If the landlord did all that the lease required it to do, i.e., put that text in all future leases, and its other tenant was a scoundrel and breached its own lease, that other tenant is surely a “rogue.” But, if a rogue tenant is one who violated an agreed-upon lease restriction, its landlord has the ability to restrain the rogue tenant and cure the exclusive use violation. That leads to the following set of thoughts.
Is the landlord who included the agreed-upon restriction in those future leases off the hook or not? Perhaps it is only off the hook if it takes the “next step.” What is that? It is something many landlords don’t want to commit to do – enforce their leases – evict the rogue tenant. Why should they? Two rents are better than one. Perhaps, if the landlord was forced to make an economic choice, it would be better off keeping the rogue tenant and let the “protected” tenant go.
That’s enough for this Blog, but you see where this is going, and we’ve just scratched the surface. Help this poor Blog writer by chiming in. If you have any idea where this topic should go next, let us know. In the meantime, we’ll be working on “when does a landlord lose the protection of blaming a rogue tenant for the violation or is that the end of the line as to a landlord’s obligation”? We’ll also be thinking of the name for an innocent violator and what should happen between a protected tenant and its landlord when you find an innocent violator.