Don’t Believe What I Told You Clauses

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Here’s a story with a few different lessons. One aspect of it won’t be of great utility to our readers, so we’ll get it out of the way right now. The tenant in this story appeared to sign a lease without counsel and without fully reading it. We don’t think that aspect casts any shade on the lessons we’ll be covering, but keep the tenant’s approach in mind as you read the rest of today’s blog posting.

The owner of a successful chain of quick-service, ethnic restaurants developed a new concept – a mall restaurant that would sell gourmet hot dogs. W.C. Fields might have called those “Gourmet Tube Steaks,” but that’s for another industry’s blogs. He honed in on a large mall, one that only had three remaining spaces in what appeared to be its food court (though the court never explicitly identified it as such). One of the existing tenants in that food court was a well-known, national, premium hamburger quick-service restaurant. No, it wasn’t the one with the golden arches. Although that hamburger restaurant sold hot dogs, they were only a sideline. So, this was of no concern to the owner’s gourmet hot dog plans. [Read more…]

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You Can’t Be A Rogue Tenant If You Haven’t Gone Rogue (Yet)

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Imagine you leased a large space at a shopping center for your sports bar and restaurant. In that lease, you negotiated for the right to be the only “sports themed restaurant/bar larger than 5,000 square feet” at the shopping center. About four years later, a new, 7,000 square foot tenant signs a lease “for the purposes of operating [] indoor golf simulators, to include the sale of golf-related apparel, a ‘fast casual’ restaurant, and a bar.” You might be a little on edge until you see that the new tenant’s lease included just what you had bargained for. It included that this golf-related tenant “may not, among other restrictions, use its premises for ‘a sports themed restaurant/bar larger than 5,000 square feet.’”

So far, so good. [Read more…]

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How Do I Lose An Exclusive Use Right? Let Me Count The Ways

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If you operate a liquor store at a shopping center, would you like to be the only one there? Of course, you would. It isn’t like a dress shop where other stores would have different styles and price points and those other dress shops will bring you business as well. But, when it comes to wine and liquor, everybody carries the same core items. Some will skew their wine offerings in one direction; others may have a different wine focus. But, when it comes to wine and liquor, all merchants have the same merchandise available to them and all can sell whatever everyone else sells.

So, it will come as no surprise that a large-scale liquor store at a shopping center negotiated and was granted some exclusive use protection. This is exactly what its lease provided: [Read more…]

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When It Comes To Tenant Exclusives, Forget What You Think You Know

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Ruminations has always had an interest in understanding the “why” of things. That includes understanding why we do certain things certain ways and especially how we can get led astray. We double down when it comes to the subject of exclusive uses. That’s why a July 5, 2018 decision out of the Superior Court of Rhode Island caught our interest. The original lawsuit was filed in 2005 and the dispute, one that started no later than in 2000, had already made two trips to the Rhode Island Supreme Court. Here’s the opening line from the 2018 decision, one that will probably intrigue readers: “Before this Court is the sticky question of which competing food-court vendors had the right to sell certain oriental foods – primarily various types of rice – at the [subject shopping center].” As long as we are quoting the Court, we’ll let you know that it characterized the case before it (for over 15 years) as a “saga.” Similarly, today’s posting will be a “saga,” and will conclude next week when we’ll reveal our pithy “take-aways.” [Read more…]

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Jack Of All Trades, Master Of None – Avoiding Hubris

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Several Ruminations blog posts over the years have posited that many of us, this writer included, don’t listen very well to what the person on the other end of the deal is actually saying. We already know what we think we ought to know and, certainly, that person, a/k/a “our adversary,” is only seeking an advantage over us. We don’t even play a purely intellectual game by taking the other side’s “position” in our head and rolling it over (and over). We’ve even seen this, more than a handful of times, when that other person is really trying to help us avoid a mistake. An appropriate word for this might be “hubris.” That means excessive pride or excessive self-confidence. According to one source, in Greek tragedy it means “excessive pride toward or defiance of the gods, leading to nemesis.” That same source lists these synonyms: “arrogance, conceit, conceitedness, haughtiness, pride, vanity, self-importance, self-conceit, pomposity, superciliousness, feeling of superiority.” While we are at it, that still same source defines “nemesis” as: “the inescapable agent of someone’s or something’s downfall.” [Read more…]

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Fighting The Last War

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In 1934, Edward P. Warner, writing about the implementation of the National Recovery Act (N.R.A.), expressed the following: “There is a saying that is rather common among the critics of the military profession that ‘soldiers are always preparing to fight the last war.’ Business must not incur the rebuke that it is devoting itself to preparing to sell goods under the conditions of the last economic cycle.”

The language is a little “1934” stiff, but the message remains relevant. We shouldn’t be structuring deals for the future as if the future will be unchanged from the past. That’s not to say we should fashion every deal tabula rasa (as if on a blank slate). Of course, much of what has worked in the past remains valid today. But, “much” falls short of “everything.” The trick is knowing what to save and what to discard. Until a genuine “crystal ball” is invented, we’ll need to divine the future unaided by a magical device. Instead, what we all need to do is to pay attention to early trends, some of which have been in front of our eyes for years, even decades. [Read more…]

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Is “Display” A Verb Or A Noun; More About Exclusives

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If exclusive use rights are so important to some tenants and if landlords almost always resist granting such rights, why is it that, when agreement (compromise) is reached, the parties keep making the same mistakes? We’ve written before about the generality of “exclusives” and also about some specific approaches. For the benefit of new readers and to remind others, Ruminations holds that the presence or absence of an exclusive use right (and the scope of that right) is purely a function of bargaining power. Basically, how much does each party want the lease? That having been said, here are more of our thoughts.

To the extent that an exclusive use right is justifiable, tenants should be entitled to protection for their primary business, not for items of tertiary importance. A pizzeria sells pizza. If a pizzeria couldn’t sell pizza, then it isn’t one. Selling pizza is its “primary” use. So, to the extent that the presence of a second pizzeria at a particular property would seriously cannibalize sales at the first one, it is entirely appropriate for a landlord to be barred from allowing that second one. But, a tenant that holds itself out to be a pizzeria shouldn’t be entitled to keep others (such as a health food store) from selling frozen pizzas or to keep others from selling “Italian-style” sandwiches. If a pizzeria can’t co-exist with a sandwich shop, then it is a sandwich shop, not a pizzeria. Of course, defining a tenant’s primary business may not be as easy as looking at the tenant’s name, but we all get the idea (provided we are willing to step out of our uniforms – landlord or tenant – and look at the entire picture). [Read more…]

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A Tenant’s Exclusive Use Right Can Hurt It

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Some weeks we Ruminate more than others though we freely admit it may be hard to tell the difference. So, here’s more than a clue. This is a big Ruminating week.

We’ve spent a lot of our hours, far too many, negotiating exclusive use provisions. Perhaps we should have written “arguing” about exclusive use provisions. Lately, we’ve been thinking about “why” and wondering how healthy an activity this topic of negotiation really is. One conclusion is that in many cases (granted, not all cases) a tenants’ demand for exclusive use rights is at the level of an idée fixe or a priori right.

[Britannica.com defines “idée fixe” (French: “fixed idea”) as a recurring theme or character trait that serves as the structural foundation of a work. The term was later used in psychology to refer to an irrational obsession that so dominates an individual’s thoughts as to determine his or her actions. The same dictionary defines a “priori” knowledge as knowledge that is independent of all particular experiences, as opposed to a posteriori knowledge, which derives from experience.] [Read more…]

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