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Cash or Coupons = Compete
by Ron Davis

A challenge to a California shopping center ownerís questionable actions has worked out nicely for one of the centerís tenants.

The shopping center, located in San Diego, leases space to the tenant for the operation of a convenience store. That lease contains a noncompete provision to prevent the centerís owner from leasing space at the facility ďfor any use competitive to that ofĒ the tenant.

Despite that provision, however, the centerís owner recently leased space to a tenant that sold many products also offered by the convenience-store tenant. The centerís owner justified doing so because the new tenant accepted only government coupons instead of cash for its goods.

The convenience storeís business soon declined after the competitor began operations, and the tenant decided to begin offering refrigerated and frozen foods to bolster sales. He then notified the centerís owner that he planned to add cooler and freezer units outside his leased building. The centerís owner did not respond to that notification.

So the tenant poured a cement slab in an area adjacent to the store and placed a large freestanding walk-in cooler and electrical equipment on the slab. That got the attention of the centerís owner, who sued the tenant.

The tenant responded with testimony of a real-estate expert, who stated that the lease referred to the tenantís premises as the building and surrounding area. The expert added that the slab and cooler constituted a ďtrade fixtureĒ and therefore were permissible additions to the building under the terms of the lease.

A jury decided that the centerís owner had breached the noncompete provision of the lease and awarded the tenant $41,100.34. A California court, in a separate ruling, decided that the tenant had the right to install the freestanding cooler, but must make it blend into the existing building that the tenant leases.

The shopping center owner appealed those findings and award.

A California appellate court agreed that the shopping centerís owner had violated the terms of the lease with the tenant. Explained the judge, ďGiven the tenantís substantial drop in sales shortly after the competitor moved into the center and the fact that the stores sold many of the same goods, there was sufficient evidence for the jury to conclude that the noncompete provision of the lease had been violated. Although the competitor accepted only government coupons rather than cash, there was evidence showing that many customers would nonetheless prefer to purchase items in the competitorís store.

The appellate court also agreed that the lease gives ďbroad rightsĒ to permit the tenant to retain the cement slab outside his premises and continue to use the freestanding cooler that he had placed there. (San Marcos Enterprises v. Young Joo Park, 2008 WL 4696739 [Cal.App. 4 Dist.])

Decision: October 2008
Published: November 2008



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