Which Buildings Are Included in Exclusive Use Provision?

Which Buildings Are Included in Exclusive Use Provision?

Q: I rent space in a retail property that’s split into more than one building. The owner and I disagree about which buildings are part of the “shopping center” in which I have the exclusive right to operate my type of store. Does a strip mall or shopping center tenant’s exclusive use provision apply to buildings on the property other than its own?

A: A California trial court ruled that it did. A sandwich shop tenant sued the owner of a retail property that consisted of three buildings (Building A, Building B, and Building C). The tenant was located in Building A and had an exclusive use provision that stated: “Throughout the Term … Tenant shall have the exclusive right in the Shopping Center to engage in the sale of delicatessen and submarine type sandwiches.” “Exclusive Use” was defined in the lease as: “Excluding existing tenants, Owners will not lease to similar businesses … and future tenant menus shall not include more than eight percent of their gross sales to be delicatessen- or submarine-type sandwiches.”

When the new tenant learned that an Internet café was selling sandwiches in Building B, it sued the owner for breach of contract, claiming that the exclusive use provision in its lease had been breached by the competing sandwich sales.

The property manager and the owners argued that the exclusive use provision did not pertain to the Internet café, because the provision applied to only competing businesses in Building A, where the tenant was located.

The trial court ruled that the tenant’s exclusive use provision extended beyond Building A to include the Internet café in Building B, prohibiting the Internet café from selling sandwiches. The property manager and the owners appealed.

The appeals court upheld the trial court’s decision in favor of the new tenant because its lease, the layout of the shopping center, the purpose of the provision, and the property manager’s conduct were evidence that the exclusive use provision applied to Building B.

Under the lease, the exclusive use provision applied “in the Shopping Center.” Several lease provisions defined the “Shopping Center” to include all three buildings. For example, there was only one name and address listed for all three buildings. And the site plan for the “Shopping Center” included the three buildings.

The appeals court stated that the term “Shopping Center” must be interpreted to apply to all three buildings, because to rule otherwise would undermine the “full force and effect” language of the exclusive use provision--that is, to limit the tenant’s competition in the shopping center--by permitting the property manager and the owners to lease space in Building B to a competitor that could devastate the tenant’s business. The purpose of an exclusive use provision is to protect a tenant by reducing the prospect of future competition [Garcha et al. v. Central Plaza-Union City, L.P., December 2009].