Let There Be No More Blog Postings Similar In Concept To Ruminations; We Have An Exclusive

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Many businesspeople reach agreement as to a principle expecting that someone else will express it in words that can be understood, in a common way, by others. So, when it is agreed that a landlord will not allow any “diner similar in concept to the tenant’s diner,” what were the landlord and tenant agreeing-upon? We would think that the tenant didn’t want competition in the form of having another restaurant that drew on the same kind of customer base. Of course, every restaurant competes with every other one, but the marketplace distinguishes between Michelin 3-star establishments and burger joints. That’s a key point whenever an exclusive use restriction is on the bargaining table.

So, was the tenant thinking that some diners would be acceptable and others would not be acceptable? If so, how does one slice and dice the category: diners?

To that end, we rely on a November 4, 2016 decision out of the United States District Court for the District of Colorado. It can be seen by clicking: HERE. The court rejected the “diner’s” request for a temporary restraining order and preliminary injunction to stop a pancake/breakfast heavy menu restaurant from opening in violation of the diner’s lease’s promise that: “Landlord shall not permit any other portions of the Shopping Center to be leased or sold for usage as a diner similar in concept to the operation conducted from the Leased Premises by Tenant.”

The diner presented evidence to the court, in the form of a summary of materials found on the Internet, that the pancake/breakfast oriented restaurant was frequently described as a “diner.” Beyond that, it listed the following similarities between it and its soon-to-open competitor. Here is the list from within the court’s decision:

Both are diner-style restaurants that offer relatively inexpensive food with an emphasis on breakfast items such as pancakes, omelets, waffles, and French toast, which are served throughout the day

Neither has a drive-through

Both serve food “cooked to order”

Both have table service, and uniformed servers that wear blue”

Both serve traditional American dishes such as cheeseburgers, fries, salads, steak and mashed potatoes, club sandwiches, BLTs, ice cream sundaes and other simple fare.

[Note: the diner’s menu said that the breakfast items were not available after 11 am.]

Setting all of that aside, and assuming that the pancake/breakfast format was, in fact, a diner, was it a diner “similar in concept” to the existing diner? Ahh, that’s the rub. Exactly what did the parties agree could not be added to the shopping center? That’s where writing the lease right becomes important.

Once you write a “diner” similar to the “tenant’s diner,” there must be some diners that are dissimilar and thus permitted. The problem was: who could tell what was “similar” or how “similar” it had to be? Here the court focused on one aspect of the diner – it used a 50’s theme. Its decorations, uniforms, menu, and promotions reeked 1950’s nostalgia. Seemingly, however, its menu and service style would have matched any time period; basically it was a true diner.

So, the court was stuck. The plain words said that not every diner was precluded, just some diners. Presumably, a diner with exactly the same menu and a 40’s theme would have been acceptable as would have been one with a 60’s theme. That’s screwy, but the court had to decide what was “similar in concept” and was given no guidance in the lease. The result, however, was that it interpreted the lease to bar diners with a 50’s theme. That doesn’t seem to be what anyone intended at the time the lease was written. But, we weren’t there. Who knows? [That’s the point of today’s blog posting.]

The outcome: no temporary restraining order, no preliminary injunction. Sure, the diner could proceed to a trial, but the court sent out a big signal: You are going to lose.

There’s another point to ponder, one that this court didn’t have to consider. The diner’s lease allowed the tenant to operate a “diner-style, full service restaurant.” Suppose it dropped its 50’s theme (something unlikely to be the case given that it was a well-known, popular place) and switched to pancake/breakfast focused operation. It was permitted to do so. Would the landlord then be in violation of the exclusive use grant by permitting another portion “of the Shopping Center to be leased or sold for usage as a diner similar in concept to the operation conducted from the Leased Premises by Tenant”?

Is there a point being made today? Of course there is. Write what you mean and mean what you write. It is the job of those who memorialize a business agreement to flesh out what the parties really mean by their shorthand words of agreement.

This being a short, holiday week, Ruminations thought today’s short posting was a good match.

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Comments

  1. Excellent Blog Post to start off the 2017 New Year.

    Just a thought, if the matter had gone to Arbitration instead of a Court of Lw, do you suppose the outcome may have been different?

    Wishing you, your family and your readers a Happy, Healthy and Prosperous 2017 New Year.

  2. christine tour-sarkissian says:

    I very much enjoyed reading your article.
    would the tenant have avoided this problem by attaching to the lease his menu and a picture of his restaurant and if not yet built maybe a drawing or a picture of another similar restaurant?
    thank you for your blog.
    Wishing you a Happy and Healthy New Year.

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