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Print Page Addressing Exclusivity
by Ron Davis

An ironclad lease that favors the owners of an Iowa shopping center has settled a dispute involving a tenant’s noncompete claims.

The shopping center, Uptown Shopping Center, in Des Moines, leased space to the tenant for the operation of a pharmacy, and the dispute focused on the wording of the lease. It contains an express “non-exclusivity” clause that permits the center’s owners to lease other space at the center to any other business–including a direct competitor of the tenant.

Several years ago, the center’s owners asked the tenant if she would be interested in moving into a larger space, then occupied by a grocery store that was moving out. She declined the invitation, but did receive oral assurance that no pharmacy competitor would become a tenant without her knowledge and approval.

Eventually, the tenant negotiated a new lease when she expanded her business. That lease, however, made no mention of any noncompete or exclusivity terms.

The center’s owners later leased space to Drug Town, a large company that planned to offer pharmacy services. When the existing pharmacy tenant learned of the competitor’s plans, she reluctantly moved from the facility and relocated her business. She then sued the center’s owners, charging them with violating “the implied covenant of good faith and fair dealing” and illegally interfering with her “business advantage.”

A jury decided in her favor and awarded her $77,487.99 for damages incurred in the relocation of her business. The center’s owners appealed, arguing that since the lease terms of the tenant did not address the issue of exclusivity, they were within their rights to lease space to the competing pharmacy.

An Iowa appellate court agreed with the center’s owners and overturned the jury award, explaining, “Several courts have clearly stated that a commercial tenant is not protected from competition without an express contract clearly stating the same.... Finding that no enforceable written or oral promise imposed a duty on the center’s owners to protect the tenant in this case from competition by agreeing not to lease space in the shopping center to any business engaged in retail pharmacy, we conclude the implied agreement of good faith and fair dealing claim must fail as a matter of law.” (Horton v. Uptown Partners, 2006 WL 1279044 [Iowa App.])

Decision: May 2006
Published: June 2006

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