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? [Read more…]

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Can A Bag Of Dog Food Be A Pet? Can A Bar Of Soap Be A Grocery? Another Unnecessary Fight Over Exclusive Use Rights

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Many readers may remember reading one or even many articles or possibly attending programs growing out of a 2013 United States District Court ruling in a law suit by Winn-Dixie Stores against three “dollar store” chains. Some may even have read that lower court’s decision. Basically, that case explored a number of aspects of a dispute about a supermarket’s exclusive use rights. Ruminations never did a blog posting based on that decision. There were two main reasons. First, we were late to the game; many other got there first. Next, the discussion space got so full, there wasn’t much elbow room for us.

Well, things have changed. The United States Court of Appeals “spoke” on March 5, 2014. You can see the 72 page decision by clicking HERE. We’re not so sure this appellate court got it “right,” though it may have had little choice. Read on.

Today, we’ll review the substance of the exclusive use dispute, and we’ll do a reprise of a frequent Ruminations refrain – say what you mean, and mean what you say. [Read more…]

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What Should A Landlord Carve Out From A Tenant Exclusive?

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Don’t expect cut and paste clauses today because we’re only going to do some conceptualizing. Once it is settled that a tenant will get the benefit of an exclusive use right, its landlord needs to make sure that its own ability to make a living isn’t imperiled. We’re not going to discuss whether landlords should grant exclusive use rights because sometimes that just what needs to be done to get the rent for an otherwise empty space.

To all get on the same page, let’s try to agree that the legitimate objective of an exclusive use right is to protect a tenant’s core business (i.e., the reason its customers come to the store in the first place) against cannibalization from competing tenants at the same property whose customers come to the property, in part, because the very same “protected” tenant is at the property. Tenants with sufficient bargaining power can stretch that protection to nearby properties owned by the landlord or by affiliates of the landlord, although the rationale is a little weaker. Perhaps the strongest economic argument (or more likely, emotional argument) is that the protected tenant doesn’t want its landlord to use that tenant’s rent money to invest in nearby properties occupied by the “protected” tenant’s competitors. Ruminations may return to that subject in the future, but that’s the last you’ll read of “off-site” restrictions today. [Read more…]

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You May Have The Exclusive Right To Sell Sandwiches, But I Can Still Sell Burritos Because A Burrito Is Not A Sandwich!

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7th Circuit Court of Appeals Judge Richard Posner has written an essay in the New Republic “discussing” Justice Scalia’s recent book (co-authored with Bryan Garner), “Reading Law: The Interpretation of Legal Texts.” In Judge Posner’s essay, he reminded us of an “old saw,” an unreported 2006 Massachusetts court decision** about the meaning of the words we choose to use in our leases.*** In this particular case, the word is “sandwich.”

A Panera Bread franchisee spent several months negotiating a lease, “partly because of [Panera’s] request to include an exclusivity clause in the lease.” Panera prepared the original text and it was revised three times before the lease was signed. Subject to a number of carve-outs, the core of its disputed language was: [Read more…]

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When Does Getting The Sole Remedy of Terminating Its Lease Make Sense For a Tenant, If Ever?

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Ruminations has been discussing what should happen when a tenant’s exclusive use right is breached. One of the remedies suggested in prior postings, as well in reader’s comments, is the tenant’s right to terminate the lease. That’s a remedy brought up in other contexts as well. So, it seems appropriate to discuss the “lease termination remedy” in a somewhat general way, not just when it come to exclusive use rights. [Read more…]

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Unified Theory of Remedies for a Breach of an Exclusive Use – a Work in Progress.

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With the help of some readers, Ruminations is spiraling in on a unified theory about remedies a “violated tenant” might have against its landlord and others for the breach of an exclusive use right granted to the violated tenant in its own Lease. We’re going to start with possible remedies against the landlord because that’s the most discussed facet of this topic when reaching a deal and when negotiating a lease. The agreed-upon remedies are important to lenders and buyers as well because what is agreed-upon can affect the economics of sales and financing transactions. For an example, think about the effect on the shopping center buyer in the Office Depot case discussed in the Ruminations entry of July 25, 2011. [Read more…]

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A Unified Theory of Remedies for Breach of an Exclusive Use Right – a Work in Progress.

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With the help of some readers, Ruminations is spiraling in on a unified theory about remedies a “violated tenant” might have against its landlord and others for the breach of an exclusive use right granted to the violated tenant in its own Lease. I’m going to start with possible remedies against the landlord because that is the one most discussed in reaching a deal and in negotiating a lease. These are important to lenders and buyers as well because they can also affect the economics of sales and financing transactions. For an example, think about the effect on the shopping center buyer in the Office Depot case discussed in the Ruminations entry of July 25, 2011. [Read more…]

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What if it isn’t a Rogue Tenant Violating an Exclusive Use Right?

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I thought we’d take a break away from the vigorous debate about whether lease renewal (and other) options should be conditioned on the absence of a default, and return to the more mundane discussion about exclusive use right issues.

A number of contributors thought that our industry should have a different name instead of “Rogue Tenant” for a tenant who violates the prohibition, in its own lease, against conducting a use that was granted to another tenant as that other tenant’s exclusive use at the project. You can see those comments at our August 11 Ruminations entry.

What do you call a tenant that is violating another’s exclusive use right, but that isn’t a “rogue tenant”? Absent any knowledge on its part that the other tenant has bargained for an exclusive use right, you probably can say: an “Innocent Violator.” [Read more…]

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